Return of veteran economic policymakers helps lira sentiment

The lira continued its rally last week, strengthened by the dovish Fed guidance, with the TRY basket (50:50 USD:EUR) ending 2% stronger than the beginning of the week. 

This comes as no surprise, as TRY was a strong candidate to benefit from a more dovish long-term Fed outlook, but, when compared to similar currencies, the lira underwhelmed following the Fed decision, TRY-ZAR, for example, did not recover much, remaining near multi-year lows to which it had recently fallen.

"Local macro and military developments have not been helpful. Inflation expectations rose noticeably and, once more, approached 8% in CBT's September survey. Kurdish militants refused to agree to any unilateral ceasefire, which had to be expected, but will keep the security situation precarious in the border regions", says Commerzbank. 

The one positive development which helped on Friday and could extend the rally in coming weeks was the re-instatement of a number of AKP heavyweights, most prominently, Mr Ali Babacan and Mehmet Simsek, on AKP's candidate roster for the November election. 

These AKP heavyweights are familiar to international investors and hold significant credibility on policy, but they had taken backseats over the past year as President Recep Tayyip Erdogan made a bid to exert more direct control over economic policy. 

AKP realised the value of these experienced policymakers and changes to the 3-term limit for MPs were necessary to re-introduce them does impact AKP's prospects in the election, even if only modestly. The other opposition parties have made only minor adjustments to their own lists, and appear to enter the elections with the same plan as last time.