The votes are currently being counted after the Turkish people headed to the polls today. Traders expect high volatility, even chaos.
The Turkish lira is trading at 19.56 per dollar, close to its all-time low. The expansionary monetary policy by the central bank caused inflation to surge and the lira to plunge, despite the central bank's effort to stabilize the rate by selling its dollar reserves, and even the citizen's dollar savings through swap agreements with commercial banks.
I believe the Turkish lira will take very different directions in the two possible scenarios.
In the case that the current president wins, the lira is likely to see new lows during his term, as he is most likely to pressure the central bank to cut rates, make borrowing cheaper for businesses (mostly his cronies), and increase growth. Also, foreign investors are most likely to withdraw their funds as the country drifts further away from democracy, driving the demand and price for the lira down.
In the case that the opposition wins, the lira might depreciate first but the long-term expectation is a sharp rally, forecasted to be around 14 or 15 USD. The initial decrease might occur due to the halt of the central bank policy to keep the USD/TRY rate stable. However, a sharp rally is expected in the long run as the opposition promises to raise the rates to combat inflation.
The current situation seems like we probably will have a run-off between Erdogan, the current president, and Kilicdaroglu, the opposition leader. As Erdogan seems stronger, the Turkish lira probably will plunge to a new low.
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