Turkey is holding both its presidential and parliamentary elections on Sunday.
In the event of a victory by Erdogan, it's "highly likely the Turkish lira collapses within months," the founder of advisory firm Cribstone Strategic Macro Mike Harris told CNBC.
"Concerns about the actual election uncertainty, and then the uncertainty over a potential change in government and how they might manage FX is what is behind the sharp rise in FX volatility to this 42.7% level," said Paresh Upadhyaya, a portfolio manager at Pioneer Investments, who added that the lira's volatility rate hovered around 10-12% in December.
And if the opposition emerges victorious, the lira will begin to see some strengthening, at least initially, said Upadhyaya. In a regime change scenario, the lira may still experience downside in the very near-term as FX intervention efforts halt, but longer-term could see a very sharp rally.However, whatever sharp positive reaction will be short-lived, according to a"The coalition is made up of smaller parties, which came together only to oust Erdogan," wrote the bank's Senior Emerging Markets Economist Tatha Ghose.
"In a regime change scenario, the lira may still experience downside in the very near-term as FX intervention efforts halt, but longer-term could see a very sharp rally."Turkey is currently grappling with an inflation rate of close to 50%, after breaching a 24-year high of 85.51% last October.
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