The Turkish lira is climbing ahead of Sunday’s snap elections

“The view of Erdogan is that low interest rates will encourage investment intoTurkeybecause investors will become encouraged to take advantage of lower borrowing costs,” Ahmad said. “This view is not economically incorrect, but it also does not fully take into account the dangerous effect the Lira depression is having on the Turkish economy.”

The lira hit an all-time low last month after Erdogan said in an interview with Bloomberg TVthat he would exert more influence over the economy, raising concerns about the independence of Turkey’s central bank under another Erdogan term.

Ahmad said investors need to closely monitor how the lira reacts to the election “in case it causes a ripple effect on other global markets.” If the lira hits another record low, it could lower risk appetite for other emerging markets currencies which he said are already vulnerable amid global trade tensions and a stronger dollar.

“We can’t afford to look at the weekend Turkey election as an idiosyncratic event,” Ahmad said.

Turkey’s fiscal policies are also at risk of weighing on the lira in the near-term. A team of Morgan Stanley strategists led by Hans Redeker wrote in a research note that the lira is likely to continue to weaken post-election should there be no change to its “imbalanced” growth model.