Famous banks’ election expectations

The May 14 elections, which are considered “the election that will determine the fate of Turkey” by foreign banks, are approaching. Looking especially at the signs of a return to orthodox policies in the Turkish economy, the number of reports from famous banks containing consensus on interest rate policy is increasing.

>> Interest rate cut, the slowdown in growth: Standard Chartered

While a gradual change in interest rates is expected after the election, a 50 basis-point cut in the last rate decision on April 27 before elections is the most likely scenario, according to a report by Standard Chartered economist Farooq Pasha. The 2023 growth expectation for Turkey is 2.5%, indicating a slowdown compared to the previous growth data. “Avoiding the current unorthodox policies may attract sufficient portfolio flow to close the gap while the economy adapts. In such a scenario, we can see the USD/TRY level at 20 at the end of 2023. On the other hand, the continuation of the current policies will allow the TL to fall to the levels of the end of 2021 in real terms. We think that in such a scenario, the USD/TRY will reach 36 at the end of 2023,” the report said. 

>> Return to more orthodox policies: Bloomberg 

Bloomberg economist Selva Bahar Baziki: “We are seeing a return to more orthodox policies regardless of the election result. Erdogan’s economic model aimed to achieve increased investment, current account surplus, stronger lira, and sustained price stability. Instead, the model failed on all four targets.” 

>> A painful period: Abrdn in London

“We all know that the current policy path is unsustainable,” said Viktor Szabo, Director of Investment at Abrdn in London. “While the opposition has a reasonable macro program, it will be a painful period as it will require crashing the economy first to bring down inflation,” Szabo said. In other words, Turkey has been dropped into a deep pit and it will be difficult to get out of there,” he said.

>> Upside in dollar: HSBC

HSBC CEEMEA Region Currency Strategist Murat Toprak stated in his report that the deterioration in fundamentals and the signs that the TRY was overvalued may lead to a wider correction in the exchange rate than the bank had previously predicted. HSBC increased its pre-election USD/TRY forecast from 21 to 24. 

>> Interest rates may rise above 40s: Morgan Stanley

Morgan Stanley analysts expect a sharp return in economic policies if the opposition front wins the election. Their forecasts for interest rates are above 40%. The bank underlines that the real exchange rate and the balance of payments will be an economic pressure factor in the victory scenario of the opposition. The report stated that the pressures may create an upward momentum in the USD/TRY at the first stage. There will be an economic contraction in the first three quarters of 2024 due to the disinflationary environment, then a rapid recovery may take place, the report said.

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