Turkey’s lira, bonds and stocks advanced before Recep Tayyip Erdogan takes his oath as an executive president with vastly expanded powers and announces his cabinet.
The currency appreciated as much as 0.9 percent against the dollar, supported by gains in emerging markets. President Erdogan will unveil his cabinet around 9:30 p.m. in Istanbul after he’s sworn in. He will appoint members of his cabinet, which is expected be reduced to about 16 in strength from the current 27, and has the power to appoint other high-level officials.
While the new system boosts the president’s powers and cuts those of the parliament, investors are on the lookout for cabinet members’ names that may provide clues on any future policy bias. They are waiting to see whether those with a pro-market image such as Deputy Prime Minister Mehmet Simsek and Finance Minister Naci Agbal made the cut, or if they’ll be replaced by people from Erdogan’s inner circle who prize growth over fiscal and monetary discipline.
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“With above 15 percent annual inflation and $230 billion-plus external financing needs versus $26 billion net foreign-currency reserves, the economy should need urgent measures to cope with the macro imbalances,” Global Securities analysts including Sertan Kargin wrote in a note on Monday. “Turkey’s case is no longer really about who will be in the driving seat of the economy, but whether or not challenging macro measures will be taken.”
Erdogan has said he intents to take more control of the monetary policy once he is elected as an executive president, and has pledged to lower interest rates, putting pressure on the country’s markets ahead of the June 24 vote. His senior advisor Cemil Ertem said in late June that the names of policy makers or cabinet ministers are “meaningless” under the new system.
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“For as bad as it sounds, I must agree with” Ertem, said Cristian Maggio, head of emerging market strategy at TD Securities in London. “I think it’s all about what’s in Erdogan’s mind. That said, the usual names that are market-friendly would make the cabinet more palatable.”
The lira strengthened as much as 0.9 percent to 4.5340 per dollar as of 11:56 a.m. in Istanbul, while the benchmark Borsa Istanbul 100 Index rose 1.7 percent to rise above 100,000 points for the first time since June 4. The yield on 10-year government bonds dropped eight basis points to 17.35 percent.
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