Turkish lira enters in uncertainty territory amid political turmoil

The chance for early elections in Turkey is growing after Prime Minister Ahmet Davutoglu resigned. The Prime Minister left his position amid a battle for influence with President Recep Tayyip Erdogan, who is trying to win a majority to change the constitution. On the background of the heavy political situation the next steps of the government in monetary policy are becoming increasingly difficult to predict. The currency performed better than most currencies in emerging markets this year, but the Turkish lira lost more than 4% during the last week after the resignation of Davutoglu, which bear country to a new political uncertainty.

Analysts lowered their forecast for Turkish currency, saying the resignation of Davutoglu paves the way for early elections and presidential system of government. The experts predict weakening of the Turkish lira to 3 TRY per USD at mid-year (compared with a previous forecast of 2.90) and 3.25 by year-end (compared to 3.00 assessment earlier). Analysts also revised down its forecast for Turkish economic growth to 3.5% in 2016 and 2.5% in 2017 compared with 4% expected earlier.

Recent political turmoil would reduce investor confidence at a time, when the country is heavily dependent on foreign capital.

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