Turkey: Failed coup causes damage - Rabobank

Piotr Matys, Research Analyst at Rabobank, suggests that the Turkey faces the prospect of a tense and potentially toxic atmosphere in politics after a relatively small group of the Turkish army attempted to topple President Erdogan and his governing Justice and Development party (AKP) on June 15.

Key Quotes 

“Following the failed coup, President Erdogan may proceed to consolidate his powers, which could fuel tension between the AKP and the main opposition parties. Given that the political risks and uncertainty have increased, foreign investors may adopt a far more cautious approach and may reduce their exposure to Turkish assets.

A wave of capital outflows cannot be excluded, which would exert a selling pressure on the lira. A more volatile and depreciating currency accompanied by concerns about more terrorist attacks may lead to a weaker economic activity as households shift to a saving mode and corporates postpone strategic investment decisions.

The central bank (CBRT) may have to pause its process of simplifying the monetary policy by narrowing the interest rate corridor at the time when prominent officials expect policy makers to cut rates far more decisively to support investments and consumption. Escalating political pressure on the CBRT will undermine already damaged confidence amongst foreign investors following recent dramatic events.”