Morgan Stanley: Whoever wins the election, the dollar will rise

Arti Gercek reports that International financial institutions continue to analyze exchange rates and interest rates for the post-election period in Turkey. The latest report on this has come from Morgan Stanley. According to the US investment banking company Morgan Stanley, the Turkish Lira will depreciate and regress to its real level. It is predicted that the current 8.5 percent policy rate of the Central Bank will exceed 40 percent.

According to Bloomberg, economists and strategists who released the report, including Hande Kucuk, Alina Slyusarchuk, and James K Lord, said, “Given the strong tendency to keep the Turkish Lira relatively balanced until the elections, we expect an increase in regulations for foreign exchange transactions by locals and stricter steps from the Central Bank towards liraization.”

IF AKP WINS THE ELECTION: According to the published report, if the current government wins the election, the low-interest rate policy will be continued. However, while macro-prudential measures continue, various measures will be taken in an attempt to control financial conditions. The report says, "Contingent money flows from regional partners such as Russia and the Gulf Cooperation Council (GCC), regulatory steps and active reserve management, and the correction in the exchange rate were limited at the first stage, but considering the increasing imbalances, the dollar/TL depreciated in the last quarter of the year. We expect a sharp correction. This may trigger a partial reversal in the interest rate policy, but will likely result in an upward move in inflation and a recession in 2024 until a new macro policy framework is introduced."

IF THE OPPOSITION WINS: If the opposition wins the elections to be held on May 14, it is expected that the low-interest rate policy will be reversed. In the report, which predicts that the interest rates will rise up to 30-35 percent in the first stage, it is estimated that the interest rates may rise to 40-45 percent by the end of the year. Underlining that the real exchange rate and the balance of payments will be an economic pressure factor in the opposition's victory scenario, the report stated that the pressures may create an upward momentum for the first stage in the dollar/TL.

Regarding the general state of the economy, it was stated that due to the disinflationary environment in 2024, there will be an economic contraction in the first three quarters, and then a rapid recovery may take place.