The Lira Currency, Already at Record Lows On A Combination of Political Uncertainty

lllTurkey’s election commission has proposed that any snap parliamentary election should be held on Nov. 1, officials of the ruling AK Party said on Thursday, reinforcing the sense that a re-vote is inevitable after June’s poll yielded no working majority.

The lira currency, already at record lows on a combination of political uncertainty and rising militant violence, fell more than 1.5 percent, briefly weakening beyond the psychological barrier of 3 to the dollar for the first time.

Prime Minister Ahmet Davutoglu formally gave up its attempt to find a junior coalition partner on Tuesday, more than two months after the AKP lost its overall majority for the first time since coming to power in 2002.

If, as now seems likely, no one else can form a coalition by Sunday, President Tayyip Erdogan is very likely to call a new election.

AKP officials said the High Election Board had proposed Nov. 1 as the date. But even that failed to assuage market worries about the $870 billion economy.

“A coalition would have been good for investor confidence, but now we have more uncertainty and I don’t think the result will change with new elections,” said Vedat Mizrahi, a managing director at financial services firm Unlu & Co.

“It is really tough right now. There is almost no foreign institutional investor interest in Turkey.”

The lira was 1.6 percent weaker at 2.9745 to the dollar at 1100 GMT, and is now down over 20 percent against the dollar this year, making it one of the worst performing currencies among its emerging market peers. Istanbul’s BIST 100 stock index dropped 1.7 percent to 74,055.

 

Erdogan, founder of the AKP, could still in theory ask the main opposition Republican People’s Party (CHP) to try to form a government.

However, the CHP has shown little sign of being able to assemble a majority, and local media quoted Erdogan as telling a meeting of village administrators that he would not “waste time” with those who did not know the address of the presidential palace, an apparent reference to the head of the CHP.

Instead, Erdogan has indicated that he will summon an interim “election cabinet” to lead Turkey to a new election.

This would see power temporarily shared between four political parties with deep ideological divides, although even that prospect is uncertain as two of those parties, the secularist CHP and the nationalist MHP, have said they would not take part.

The political crisis has coincided with rising political violence, some of it linked to Turkey’s growing involvement in the civil war in neighbouring Syria.

On Wednesday, gunmen fired on police outside a palace in Istanbul and a bomb killed eight soldiers in the mostly Kurdish southeast.

Investors looking to the central bank for an independent steadying hand have been disappointed.

The bank declined to raise interest rates at its monthly policy meeting on Tuesday, in what investors saw as acquiescence to political pressure from Erdogan.

“The (central bank) is in ‘rabbit in the headlights’ mode again,” said Tim Ash, credit strategist at Nomura. “You have central bank independence for a reason – Turkey does not have enough of it these days.

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