Wells Fargo Dollar Pick and Analysis
Wells Fargo, one of the largest banks in the US, has updated its scenario regarding the May 14 elections in Turkey.
In the report prepared by Wells Fargo economist Brendan McKenna, while stating that President Recep Tayyip Erdoğan is more likely to be elected, it is stated that if Erdogan wins, the dollar/TL will be priced at level 23 by the end of the year, and if Kemal Kılıçdaroğlu wins, the exchange rate will be priced at 15.
In the report, the analysts stated that they believe Erdogan will continue in office, saying: “Our base case for the Turkish lira is that Erdogan wins the election in the second round.”
THEY SEE A GREATER CHANCE OF ERDOGAN BEING ELECTED
Despite new challenges with the Turkish economy and earthquakes, Erdogan remains popular enough to get enough votes, the strategists said they believe Erdogan can sway voters.
Although the analysis estimates that the probability of Erdogan remaining in office is 50 to 55 percent, according to analysts, this probability has decreased since the first scenario was published and the probability of a change of power has increased. According to analysts, the probability of a change of power was 45-50 percent.
“Unsustainable economic conditions are at the center of the power shift stage,” the report said. The insufficient response to the earthquakes has also contributed significantly to the momentum of the opposition National Alliance in recent months.”
Wells Fargo’s possible scenarios regarding the Turkish elections were as follows:
SCENARIO 1: ERDOGAN’S VICTORY
“If Erdogan remains in office, the Turkish lira is likely to experience another large depreciation. In the long term, unless economic trends and monetary policy change, a large depreciation of the lira may occur. We expect the lira to depreciate at least until mid-2024.
In this scenario, we believe that the dollar/TL rate may reach TL 22 by the end of the second quarter of 2023 and the lira may depreciate further. We believe that the USD/TL rate can reach TL 23 by Q4 2023 and reach TL 24.50 in mid-2024.
In the longer term, we expect the depreciation of the lira to continue, as foreign exchange reserves continue to deplete and the direction of monetary policy remains unchanged.
SCENARIO 2: THE VICTORY OF KILIÇDAROĞLU
In our power shift scenario, the lira could experience one of the biggest rallies in modern history when an independent central bank is restored and orthodox monetary policy is implemented.
If Nation Alliance takes office, we will adjust our dollar/TL rate estimates to reflect the strength of the lira, as the change in policy framework will result in foreign investors returning to TL and TL-denominated assets.
In this scenario, the dollar/TL rate may close 2023 at TL 15 and may trade at TL 14 in mid-2024.”