Turkish local elections on March 31 ended a long series of election campaigns. Will reforms follow?
Following March's local elections in Turkey, investors are hoping that the four-year gap before the next general elections means that the government will now focus on economic reforms.
These are badly needed. The Turkish economy is in recession and could benefit from easier monetary and fiscal policy. But scope for easing is limited by high levels of foreign currency debt, the strong impact of currency moves on inflation, and the low international reserves of the central bank.
Measures that address these constraints - and also broaden sources of growth - would speed up the recovery and insulate the economy from shifts in global risk sentiment. So while high interest rates of the central bank and a conservative fiscal stance can help stabilise Turkish assets for now, we believe that progress on reforms will ultimately be the key factor shaping market behaviour.
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