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Turkey’s lira is trading steadily in the aftermath of the country’s constitutional referendum, wiping out brief gains made following the slim margin of victory for the ruling government which is being contested by opposition parties.
The currency, which has held the title of the world’s worst performing emerging market exchange rate in 2017, jumped as much as 2 per cent against the dollar after news of a triumph for the ‘Yes‘ to transform Turkey’s parliamentary democracy to an executive presidency emerged late on Sunday.
Although the official result will not be confirmed until next week, the vote count indicates a 51.4 per cent margin of victory for constitutional changes which will hand broad new powers to president Recep Tayyip Erdogan should his ruling AK party win an election in 2019.
Ahead of the vote, investors seemed to have largely priced in the probability of a narrow Yes vote with analysts noting that a consolidation of Mr Erdogan’s power should deliver short-run political stability in an economy which has suffered from security and political turmoil over the last year.
The lira is up 0.2 per cent against the dollar at publication time to TRY 3.6923 having closed Monday 0.8 per cent higher. The currency had strengthened to two-week high of TRY3.6260 yesterday before retreating.
With the referendum contested by opposition parties and the government extending a state of emergency first put in place since last July, Marc Chandler at BBH thinks there are few reasons to turn bullish on Turkish assets “when Mr Erdogan will have few constitutional checks on his authority”.
The referendum result “will further strain [Turkey's] relationship with the rest of Europe”, said Mr Chandler
First chart via Bloomberg