What happens in the economy until the 2nd tour?
that everyone is eagerly waiting for in the economy THE INDICATOR until the second tour of presidential elections on May 28 is undoubtedly the volatility that can be experienced in the exchange rate...
Those who have foreign exchange (FX) debt, those who need FX to invest, those who want to save, everyone’s eyes are on the FX rates.
What about the government? They want these two weeks to pass without a rapid increase that will disrupt the balance and perception. The expectation is that the FX rate will rise anyway. However, what they require is to keep the rate at these levels for at least two weeks.
The target date for the FX rate to remain flat or close to flat was the election day. The whole aim was to ensure that there was no jump in the currency until May 14. It has been very difficult to hold the FX rates flat in the last month. The rate began to increase and price spread incredibly widened and different price levels occurred in the market. But the currency was somehow held at a level until May 14.
So, the government will not allow a step that will interrupt this effort that it has been exhibiting for months until the second round. Therefore, it would be a great surprise to experience a sudden increase in the FX rate until May 28. So, everything will be done to prevent such a climb, such as further expanding the scope of the already implemented unnamed capital control.
However, this does not mean that the pressure on the FX can be completely avoided. We already see that it is unavoidable. The increase in FX will continue, but there will not be a very rapid increase in an instant until the second round.
Erdogan was ahead of his rival in the first round, but this does not mean that election race is over. It is already clear what kind of economic policy Kilicdaroglu will implement if he is elected. The question is whether Erdogan will continue with the current economic policies, or start over with a clean slate.
It is obvious that it will not be possible to keep the FX with the current practices after May 28. It is not quite right to describe the practices so far as a policy set anyway. Therefore, it would not be surprising that the Central Bank’s policy rate increased in the days following the second round.
However, this will not be the only decision. Basically, steps will be taken to attract funds from abroad. One way of this is to increase the interest rate. If we cannot ensure FX inflow then we may witness rapid increase in FX rates. There will be an increase in supply thanks to the tourism season we are entering but what about autumn and winter?
But to be honest, I don’t think anyone will think about after May 28. The most important thing is to be on the safe side until the second round. Everyone sees that the biggest danger will be a jump in the currency.