Roasted Turkey: Lira, Stocks Dive As Erdogan Considers Calling Early “Elections”

Among the many market-related geopolitical stories playing out in the background this week, you’ll find Turkey and the case of the beleaguered lira (more here), which plunged to an all-time low earlier this month amid concerns that Erdogan’s desire to keep juicing the economy is going to make it well nigh impossible for the central bank to get ahold of inflation and put the brakes on the FX spiral.

Obviously, Erdogan has a history of this – he’s the self-declared “enemy of interest rates” and although “interest rates” can’t technically be thrown in prison, the people who set them can, which is one reason why no one wants to cross that fucking lunatic when it comes to getting too hawkish even as the market punishes the lira for Erdogan’s strategic transgressions.

And it’s not just interest rates. Erdogan has other “enemies” too – like Kurds, and opposition politicians, and that scheming bastard Fethullah Gülen in Pennsylvania, and most especially, checks and balances. Erdogan has managed to do away with checks and balances but that won’t be official until the next election and wouldn’t you know it, Bahceli and MHP are calling for polls to be moved up, all the way from the currently scheduled November 2019, to August 26.


Erdogan’s going to think about it, because you know, that’s his “duty”. “The AK Party has a tradition of holding elections on time, and we had stated that the vote will take place as scheduled, but authorized party organs should evaluate this and it will be debated,” Deputy PM Bekir Bozdag said Tuesday.

The discussions will be chaired by Erdogan and after he decides whether this is a good gamble or not, someone will apparently let you know.

Markets didn’t love this. The lira reversed gains as the headlines started to come in:


And the Borsa Istanbul quickly pared gains before falling sharply:


It’s not so much that this is unexpected as it is that it would appear to raise the risk around a continuation of the type of policy stance that’s weighed on the lira and caused consternation among analysts.

“Markets fell because we would go again into pre-election mode, which means the risk of more spending promises, more negative comments and pressure on the central bank, potentially more tension with Western countries amid election rhetoric”, Berenberg’s Carsten Hesse said.

“In reality, early elections — which in turn seals the President’s expanded powers — are unlikely to directly change the course of monetary/fiscal policy; both have already been loosened and one can argue that checks and balances have already deteriorated,”  UniCredit’s Kiran Kowshik said, weighing in, before noting that despite the outlook, in the near-term it’s likely that CBT will follow through with the expected hike to the late liquidity window later this month. As we’ve noted on several occasions over the past week, that better be 100bp, because if not, the lira will likely plunge further.

More broadly, this suggests that Erdogan could become increasingly cartoonish and to whatever extent elections would have been fair, you can just go ahead and forget it if they decide to move them up. Here’s TD’s Cristian Maggio:

Risks are usual belligerent political rhetoric. But running an election with state of emergency law, and with all the other restrictions on the use of social media, advertising, anti-terror laws etc. mean that the CHP will record another resounding defeat, and the opposition as a whole together with them.

In other words, just what Erdogan likes to hear.


I suppose it’s possible that he wouldn’t want too much pressure on the lira during the run-up to an election, but then again, why should he care? It’s not like he’s going to lose.

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