The Turkish lira strengthened and the Istanbul Stock Market saw gains in the first market reaction to April 16’s controversial constitutional referendum. The currency strengthened 0.5% and shares moved up 0.66% in the first April 17 trading. The yield on the 10-year bond eased to 10.86% from 11.11%.

Although investors are relieved the drawn-out referendum campaign is over, and will hope President Recep Tayyip Erdogan and the government can now properly focus on steadying the economic ship, most analysts believe any post-vote rally may be short-lived. With Erdogan’s claim that the voters have narrowly opted to award him an executive presidency under scrutiny from external election observers and even academics who have made preliminary studies of voting patterns, there is some renewed risk that Turkey-EU relations, geopolitical risks and structural economic reforms could face renewed turbulence.

Some observers had thought that whatever the outcome of the referendum, the ruling AKP might opt for a snap general election. But Deputy PM Mehmet Simsek, ruling that scenario out, said ministers would start implementing economic reforms next month.

“It would be too risky for President Erdogan and the AKP to go for early elections with such shaky support. Erdogan will most likely hope that a recovery in growth prospects and political stability will help to increase the popular support for the government by the next election,” Yarkin Cebeci, an analyst at J.P. Morgan, wrote in a report published on April 18.

Indeed, the data released after Sunday’s vote were not promising, Turkey’s unemployment rate hit 13% in January while the central government budget deficit tripled in March.

Sticky inflation and a high current account deficit are other dilemmas facing the Turkish economy, which expanded at 3.5% in the fourth quarter of last year.

However, the government is likely to be more preoccupied with the domestic political agenda in the short term rather than the economic reforms.

Parliament will be busy in the next six month harmonising existing legislation with the new constitution, Hurriyet Daily News reported on April 18.

“From a macroeconomic point of view, the end of the election cycle could provide room for the politicians to focus on structural reforms, but unfortunately, we are seeing no sign of this at the moment… If the political uncertainty indeed diminishes, the pent up demand could get released, helping the growth dynamics in the coming months,” said Cebeci at J.P. Morgan said.

Cebeci noted the main opposition party CHP’s claims about voting irregularities, yet wrote that while “the challenges could cause stress for a few days, we strongly doubt it would change the result of the referendum. Hence, its market impact should be temporary”.

According to Morgan Stanley, investors will also focus on “initial changes related to the new constitution, including the one giving the president the right to re-establish political ties with AK Parti, a possible cabinet reshuffle in the upcoming weeks, and changes in policy reactions on both the monetary and fiscal fronts”.

Cebeci thinks that in the absence of early elections, the political pressure on the central bank could diminish and the national lender could stick to its promise of keeping liquidity tight until there is meaningful improvement in inflation dynamics. He expects no change in the tight liquidity stance before the end of June

Currency still pressured

“We see a few reasons why the currency may not rally too much further. We stick to our view that the USD/TRY will end 2017 at 4.0,” Morgan Stanley said in a report published on April 17.

“In our recent publications, we flagged an improvement with the EU as a key catalyst for gains, and recent comments from officials raise some questions about that,” the bank wrote.

Erdogan at the weekend said that Turkey could hold referendums on the reinstatement of the death penalty and on whether to continue with EU accession talks.

“Talk of a cabinet reshuffle will likely limit gains, and the departure of any key economy ministers will likely be negative for the TRY. The uncertainty regarding the French election could also limit risk appetite for the TRY in the near term,” Morgan Stanley argued.