File Photo: A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018 (Photo: Reuters)
The Turkish lira weakened 2.5 percent on Monday after local elections in which President Tayyip Erdogan’s AK Party lost control of the capital Ankara and trailed in Istanbul, the country’s largest city, as the last votes were tallied.
At 0751 GMT, the lira stood at 5.6780 against the U.S. dollar, having weakened to as much as 5.6999 and compared with a close on Friday of 5.5550.
The lira tumbled almost 30 percent against the dollar in last year's currency crisis. In an echo of that crisis of confidence, it has swung wildly tmsnrt.rs/2CEaO11 in the last six trading days as the government and central bank unleashed a series of stop-gap support measures.
Turkey’s economic recession weighed on voters.
In Istanbul, the head of the country’s high election board said opposition Republican People’s Party (CHP) Ekrem Imamoglu led AK Party candidate and former prime minister Binali Yildirim by nearly 28,000 votes. Earlier, both parties declared victories.
In Ankara, CHP candidate Mansur Yavas won a clear victory, according to Turkish broadcasters.
Istanbul’s BIST 100 stock index .XU100 fell 1.65 percent on Monday.
In an early Monday speech, Erdogan pledged that Turkey would now focus on its troubled economy. Turkey slipped into recession late last year.
“The Istanbul uncertainty...may stay in the forefront and overshadow other developments in the markets,” said one banker who declined to be identified.
“The expectation is that emphasis will be given to needed structural reforms in a period of four years without elections. If there is a delay in this, it will increase pressures on markets,” he said, adding that the lira will likely remain in a 5.50-5.70 band while the uncertainty continues.
In the week ahead of elections Turkish stocks, bonds and the currency sold off, prompting the government to direct banks to temporarily starve a key London market of lira liquidity, according to officials.
Investors were also weighing up a statement Monday from Moody’s rating agency, which said the erosion of Turkey’s foreign currency reserves is a credit negative and central bank use of reserves to prop up the lira currency poses renewed questions on its transparency and independence.
The renewed slip in Turkey’s financial markets and uncertain policy reaction to recession raises a risk of further capital flight, Moody’s said, adding that the results of local polls will likely determine the future path of macroeconomic policy.
Short link: