Erdogan loses, the lira falls

Turkish President Recep Tayyip Erdogan’s Justice and Development Party (AK Party) has lost the capital Ankara and looks set to lose the commercial hub of Istanbul after 25 years in power in both cities, as Sunday’s municipal election results — largely seen as a referendum on the president himself — roll in. The Turkish lira fell sharply at the opening of London trade on Monday, the latest rout after a turbulent week that saw Turkey’s overnight swap rate shoot up as high as 1,200 percent as the central bank tried to shore up the currency.

The lira sunk at roughly 8:30 a.m London time Monday after the country’s election board said the opposition party was ahead in Istanbul’s mayoral election, briefly trading at $5.6913. But by 1:00 p.m. the currency had regained those losses and was trading at $5.5212. The currency had traded at 5.61 to the dollar after the initial results came in on Sunday evening, compared with 5.55 at Friday’s close. The country’s BIST 100 stock index was down 1.65 percent in the morning session, after falling more than 7 percent last week.

Markets now fear that the electoral losses will push Erdogan to double down on populist policies that helped send the currency tanking last year, when his interference in central bank independence held interest rates down despite soaring inflation and sent investors running for the hills. Last year saw the lira lose as much as 40 percent of its value against the dollar, although it had trimmed some of those losses by year end. The drop in the lira has led to the weakening of consumer purchasing power and caused acute pain for Turkish banks and businesses with high dollar-denominated debt — reports have put the volume of Turkey’s foreign-currency denominated corporate debt at 50 percent of the country’s GDP (gross domestic product).