(Bloomberg) -- Goldman Sachs Group Inc. analysts believe that the high-stakes municipal vote in Istanbul on Sunday will have a positive impact on the Turkish lira, amid increased pressure on the currency because of revived demand for hard currency this month. 

The race in Istanbul, the nation’s most affluent city, is watched closely by markets and investors because it’s symbolic of a broader political battle between the opposition and President Recep Tayyip Erdogan.

Read more: Erdogan Seeks to Regain Istanbul and Vanquish His Nemesis

“It should be positive for the Turkish lira, provided that the results are not contested in Istanbul or in other major cities,” said the analysts led by Kevin Daly. The Istanbul election in 2019 was challenged by the ruling AK Party and the vote was repeated. Incumbent Mayor Ekrem Imamoglu, viewed as Erdogan’s most formidable political opponent, won at the time. He’s seeking to maintain his seat in Sunday’s vote.

Turkish locals have flocked to hard currency this month on concerns that the lira could face a sharp depreciation after the vote, causing a drain in the central bank’s FX war chest. A worse-than expected inflation print last month also contributed to pressure on the currency, which has lost 9% of its value against the dollar so far this year. 

While Turkey is prone to policy swings, Goldman analysts don’t think the election outcome will cause a shift in the current monetary and fiscal policies. They expect pressure on reserves and the lira to subside after the vote and see the central bank maintaining tight policy. 

The Turkish central bank’s unexpected 500bps rate hike that lifted the benchmark to 50% last week “sends a strong signal that such a devaluation is unlikely,” said the Wall Street bank.

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