As June 24 approaches, election polls started to play their role as the most thrilling and exciting part of the election process. Considered from an objective perspective, these polls are showing us that the high likelihood that a second round will be needed to elect the next President of Turkey.
My estimation for the election result, however, is based on a delicate work where I am picking up the rational things among the irrational data released by pro-government polling organizations. I must say that the potential results of the election have not brought any substantial impact on the markets yet. So, I think it will be after the feast following the Ramadan that the market will start to buy election scenarios.
To me, establishing a connection between the rise of benchmark rate and the upcoming elections would be an unwise approach. What I mean is that there is a massive amount of capital outflow from developing countries. This is the reason why interest rates are going higher. But, the main reason is that interest rates will continue to rise from now on and never stop. So, it is admittedly quite normal for investors to try to sell their debt securities. In Turkey, 2-year Government Benchmark bond yield is currently standing at 18%, which was below 13% in February. Private sector bonds yields (1 year or less) hit 20% as of yesterday.
Monitoring the global markets, I can see that developing countries’ cost of borrowing is gradually increasing. Turkey has now entered into the process of High Growth-High Interest Rate-High Inflation. So, I must warn once again that Turkey should avoid by all means falling into the downward spiral of High Interest Rate – High Inflation-Low Growth.