Recep Tayyip Erdogan has been re-elected in a runoff election held on Sunday, marking his third decade in power. The President emphasized the need to prioritize national goals and aspirations over divisive debates and conflicts.
The results released by Turkey’s Supreme Election Council on Sunday indicate that Erdogan secured 52.14% of the votes in the recent election. In his victory speech, the president expressed his commitment to prioritizing efforts towards combating inflation and fostering recovery from the aftermath of the devastating earthquake that occurred in February. Erdogan received messages of congratulations from various foreign leaders, including US President Joe Biden and Russian counterpart Vladimir Putting.
Asli Aydintasbas, a visiting fellow at the Brookings Institution, has observed that the election results reveal a divided country, with each faction envisioning a distinct future for Turkey. Other analysts attribute Erdogan’s victory to his charisma and leadership style. Hakan Akbas, senior adviser at Albright Stonebridge Group, contends that Erdogan’s cult-like personality and oratory skills inspired confidence in his supporters. Nonetheless, it appears that Erdogan will remain in power for the foreseeable future as Turkey navigates various economic difficulties.
Erdogan Supporters in Bursa
Economic Outlook and implications of the election
The issue of Turkish inflation has been a significant focus of attention over the last two years, as detailed in my May 16 article on the Turkish Lira. The topic of inflation and its impact on the cost of living has played a pivotal role in recent elections, with Erdogan emphasizing the need to address this issue in light of his victory.
President Erdogan has expressed his confidence in resolving the issue of inflation through measures aimed at addressing the adverse impact of price hikes and mitigating welfare losses. Prior to the election, Erdogan faced mounting criticism for adhering to a monetary policy path that prioritized maintaining low interest rates and favorable financial conditions while emphasizing alternative policy instruments and aligning all policy instruments with “Liraisation” targets. This approach has been implicated in the persistently high inflation rate and depreciation of the Lira over the past 20 months (since September 2021).
The Central Bank is confronted with a formidable challenge of maintaining stability in the Lira in the aftermath of the election, as any potential shift in monetary policy could lose momentum. This becomes evident from the initial market response on Monday, with USD/TRY exhibiting a sudden surge above the 20.0000 level.
Technical outlook and final thoughts
It is anticipated that there will be continued high levels of volatility in the upcoming days when considering the broader perspective. The USDTRY has been steadily increasing, however, it presents a challenge to analyze its price action due to the rapid and erratic movements.
The agreement reached regarding the US debt ceiling may impede the potential for further appreciation of the USD/TRY in the near future. Nevertheless, there has been an adjustment towards a more hawkish outlook for the Federal Reserve’s likelihood of increasing interest rates going forward. This may serve to maintain support for the US dollar, despite its safe haven status experiencing some diminishment following the resolution of the debt ceiling issue.
The Lira’s weakness is anticipated to persist unless President Erdogan discloses a possible alteration in monetary policy. The response of the US dollar is worth observing upon the return of markets after a bank holiday. If the US dollar maintains its strength, the Lira may move away from the psychological threshold of 20.0000 and achieve new highs.
In an academic context, it is possible that a decline in value may occur. Should this occur, the 50-day moving average could provide support at approximately 19.44 units. However, there are also two other moving averages to consider: the 100-day moving average and the 200-day moving average, which have values of 19.1500 and 18.8300 respectively and are positioned lower than the 50-day MA.