Victories for President Erdogan and his AKP-led alliance in Turkey’s elections have been welcomed by financial markets, but history suggests that this rally will be short-lived, particularly if Mr. Erdogan uses the new strengthened presidential powers to push for looser monetary and fiscal policy. We should get an early indication of whether the shift towards more unorthodox policymaking under Mr. Erdogan will continue if he renews calls for lower interest rates ahead of next month’s MPC meeting and if he doesn’t keep Mehmet Simsek – one of the few remaining investor-friendly politicians from the previous government – as an advisor or cabinet member.
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