Erdoğan election honeymoon all too brief – FT
Turkish President Recep Tayyip Erdoğan’s election victory on Sunday instilled a little stability in financial markets, but unfortunately it lasted only a morning, Adam Samson wrote in the Financial Times.
The lira is still down by almost a fifth this year and Turkey’s bond market, where the yield is widening versus U.S. Treasuries, is showing that investors are nervous about the country’s future direction, Samson said. The spread of Turkey’s 10-year dollar bonds is now up from last week and much higher than it was at the issuance in April.
Analysts are concerned that Erdoğan will further destablise and economy that is already showing signs of overheating. Inflation is 12.2 percent compared with he central bank’s target of 5 percent and the current account deficit has widened significantly. The environment for emerging markets in general has also turned bearish.
“As… the Turkish central bank has not yet been able to prove that it is willing and able to oppose the low interest rate wishes of the new and old President Recep Tayyip Erdoğan if necessary, a substantial (lira) risk premium remains justified,” said Esther Reichelt, an analyst at Commerzbank.
The focus on Turkey now shifts to who Erdoğan will pick for his economic team and to what extent policies will indicate a return to orthodoxy or a further shift away from it, said Nafez Zouk of Oxford Economics.