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Standard Chartered analysts point out that in the first electoral test of support for Erdogan, Turkey is going to hold local elections on 31 March to choose mayors, provincial and municipal councillors and other local officials.

Key Quotes

“Like the last local elections in 2014, key will be the results in the three largest cities: Istanbul, Ankara and Izmir. Ankara, and even more so Istanbul – Erdogan’s hometown and the largest city by far – are viewed as essential for the AKP to retain. These are the last scheduled elections until June 2023.”

“Much is at stake for the post-election economic and funding outlook, in our view. First, policy makers’ commitment to tight fiscal policy after the elections will be tested. The fiscal stance loosened ahead of elections to counter the impact of the recession that saw the unemployment rate nearing global financial crisis levels. Second, Turkey faces a funding balancing act in 2019, in our view, despite a smaller current account deficit as weaker demand has led to import compression. Portfolio inflows have yet to recover to pre-currency crisis levels and external funding remains vulnerable to geopolitical tensions.”

“Third, the central bank (CBRT) will likely cut interest rates after the elections (we see the first cut in H2-2019) on softening inflation and a more benign global backdrop. A more ‘patient’ US Fed provides room for the CBRT to prioritise domestic factors, such as the recession and its impact on banking-sector asset quality.”