Turkish markets rise before Erdoğan cabinet announced

The Turkish lira, stocks and bonds rose prior to President Recep Tayyip Erdoğan’s announcement of a new cabinet under his enhanced presidency.

The lira climbed 1.1 percent to 4.52 per dollar at 2:10 p.m. in Istanbul, leading gains for the biggest emerging markets in Europe and Africa. Turkey’s BIST-100 share index increased 1.9 percent to 100,581 points, breaking through 100,000 points for the first time in more than a month. The yield on 10-year lira debt fell 8 basis points, or 0.08 percentage points, to 17.35 percent.

Investors are looking for signs that Erdoğan will keep pro-market, reform-minded officials such as Deputy Prime Minister Mehmet Şimşek in a revamped government following his victory in June 24 presidential elections, which vastly increased his executive powers. They are concerned that the appointment to his cabinet of less orthodox advisers from his inner circle will mean more pro-growth economic policies that damage Turkey’s standing as a safe place to invest. The lira has slumped more than 15 percent against the dollar this year on fears of economic overheating.

Still, Erdoğan’s adviser Cemil Ertem has said that ministerial appointments carry much less weight under the new government, as the positions will be “bureaucratic” rather than executive. The heads of new presidential bodies that will recommend policies to Erdoğan in areas such as the economy, foreign affairs and social policy are set to be key.  

Erdoğan is due to announce new ministers, including vice presidents, and, perhaps, the members of the new presidential bodies at 9:30 p.m. local time on Monday following his inauguration in parliament. He said last week that ministers would come from outside parliament.

Erdoğan said in May that he planned to take more control over monetary policy and to lower interest rates should he win re-election.

The central bank has raised interest rates by 500 basis points to 17.75 percent this year, including two hikes totalling 425 basis points in May and June.

The lira’s decline makes foreign debt held by Turkish corporates of more than $220 billion more expensive to repay. Several larger firms have already applied to banks to restructure almost $20 billion of loans, according to public statements and news reports. It is not known how many other companies, including small and medium-sized enterprises, have done likewise.