Deutsche Bank's post-election assessment of the Turkish Lira

Following the March 31 Local Government General Elections, Deutsche Bank stated that it sees more room for local and foreign currency-denominated Turkish assets to perform, and that the results emphasize the importance of maintaining the current economic policy set to bring inflation under control.

In a report published by Economist Yiğit Onay and Strategist Christian Wietoska, they assessed that, "President Erdoğan's first statements following the elections showed that he continues to support the current economic program. With the conclusion of the local elections, attention has now turned to the policy framework and the trajectory of the orthodox economic policies that have been implemented since last year's general elections."

TIGHT ECONOMIC POLICY EXPECTED TO CONTINUE

Deutsche Bank stated that it is unlikely that the negative election results for the AKP will lead to a reversal in tightening economic policies, and that it anticipates Turkey's current orthodox economic framework will most likely continue.

Deutsche Bank emphasized that this continuity in economic policies is crucial for facilitating the necessary rebalancing of the economy, promoting disinflation, and steering the Turkish economy onto a more sustainable trajectory.

The Deutsche Bank report included the assessment that, "We believe the current policy rate of 50% is high enough to facilitate the desired rebalancing in the economy, especially if it can be effectively reflected in Turkish Lira deposit rates."

The report predicted that the worst is behind us and that, following the local elections, pressure on the reserve position will ease with the reversal of domestic dollarization, moderate inflows from foreign investors, and a more positive outlook for the current account balance.

Overall, stating that it believes the local elections will not be a game-changer in determining economic policies and will not lead to a partial or full 'U-turn' in the current economic program, Deutsche Bank indicated that the 2024 local election results are likely to result in the determined continuation of efforts to bring high inflation under control.