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The Turkish lira weakened slightly yesterday, pressured by investors’ concerns that parliamentary and presidential elections on June 24 could unleash political uncertainty.
Opinion polls have shown a tight race for parliament with President Tayyip Erdogan’s AK Party and its allies possibly losing their majority by a thin margin. They also show the presidential vote may go to a second round, with Erdogan expected to beat the main opposition candidate, Muharrem Ince. Investors say such an outcome could lead to political deadlock and even force repeat elections.
“Given that Erdogan at least will win the presidential election in the second round... an Erdogan defeat in the parliament would be the worst-case scenario for the markets,” said Morten Lund, an analyst at Nordea Markets.
The lira stood at 4.7483 against the dollar at 1230 GMT, weakening from Tuesday’s close of 4.7385. It hit a series of record lows in May, weakening as far 4.9290 before recovering after the central bank raised interest rates. Since then, the political uncertainty has eroded about 2% of the lira’s value against the dollar in the past week.
This year’s sell-off has been driven by unease over Erdogan, a self-described “enemy of interest rates”. His calls for lower rates to boost borrowing and investment have deepened investors’ fears for the central bank’s independence.
“If we are going to strengthen investors, we have to do it through low interest rates,” Erdogan said in a speech on Tuesday. “The central bank raised rates 3 points, then another 1.5 points. They are telling me I shouldn’t talk about this before the election. Why wouldn’t I? I have to speak the truth, so we can reach the truth.”
Nevertheless, Lund said an Erdogan win in the first round and the AK Party securing a parliamentary majority with its allies could be welcomed most by markets, as it would mean less uncertainty.
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