Turkey’s currency and stocks rallied following the appointment of former Wall Street banker Mehmet Simsek as the country’s new Treasury and Finance Minister. While some investors had concerns about Simsek’s ability to change economic policy immediately, many see his appointment as a shift towards conventional policies. He has signaled a return to predictable, consistent policies that are compatible with international norms. Citigroup strategists believe that this appointment will offer a boost to the market, prompting them to raise their call on Turkey’s sovereign debt to market weight from underweight. Turkey’s dollar bonds have outperformed most of their emerging-market peers. The country’s main stock index rose 12% last week and may prevent any significant dip in lira value in the coming months.
It is important to note that investors still have questions about how much power Simsek will have. Turkey’s President, Recep Erdogan, has previously chased out three central bank governors since 2019 to pursue lower interest rates. So, investors will be watching to see if Erdogan cedes authority in managing the economy. Traders expect more volatility, as the extra cost of protecting against lira weakness in the next six months rose to a record 21.7% last Friday compared to January’s level of around 10.7. As much as Simsek’s appointment is seen as a favorable move towards conventional policies, some believe continued adjustments to Turkey’s external imbalances and credit expansion may be necessary to prevent the lira’s value from getting into trouble during the next winter. It’s noteworthy to monitor any significant developments in Turkey’s economic policies that may have an impact on traders in the forex market.