Goldman warns of possible pre-election currency market turmoil in Turkey

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Goldman Sachs has warned of the potential for foreign exchange market instability in the run up to Turkey's elections following years of currency reserve depletion and other costly measures.

While not its base case, the Wall Street bank said problems could be triggered if savers and firms became worried that a shift to more orthodox economic policies under a new government would fuel short-term FX market turbulence.

"The current market uncertainty poses significant risks, in our view," Goldman said in a research note published on Wednesday. Authorities could offer local banks FX swaps and try to reassure those with money deposited in the depreciation-protected bank accounts introduced in 2021 to stop the lira's plunge that year, but these measures may not work.

"Given the short-term nature of the instruments, time is unlikely to be on the authorities’ side," Goldman's analysts said. "Hence, we believe there will need to be interim solutions".

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