Will the Turkish Lira Deteriorate Against the Dollar After the Elections?

Bankers at JPMorgan have predicted a sharp decline in the Turkish lira following next month’s elections. According to JPMorgan analysts, the Turkish lira could drop to record the dollar at between 24 and 25 lira, and then 26 lira by the end of the year, compared to its current value of 19 lira. Standard government bond yields, which increase borrowing costs in the economy, are expected to jump to 25 percent. JPMorgan analysts stated, "A tactical reassessment will be needed, and we expect increased volatility." They estimate that the lira’s actual exchange rate is currently about 32 percent lower than its "fair value." The real effective exchange rate of the currency accounts for prices and measures its value against other currencies with which Turkey conducts significant trade. JPMorgan noted, "The assumption of a return to traditional macroeconomic policies could set the lira on a genuine path toward fair value."