LONDON (Reuters) – Turkey’s lira held near a two-month low, its sovereign dollar bonds fell and the cost of insuring the country’s debt exposure rose as the presidential election looked set for a runoff with incumbent President Recep Tayyip Erdogan. driving.
The lira recorded 19.65 against the dollar at 0655 GMT, after reaching 19.70 in previous trading, which is its weakest level since a record low of 19.80 in March of this year after the deadly earthquakes.
It was on track to record the worst trading session since early November. On the Istanbul Stock Exchange, a decline of 6.38% triggered a market-wide circuit breaker.
The parties of Erdogan and his opposition rival Kemal Kilicdaroglu were clamoring for the lead after Sunday’s presidential and parliamentary elections, but sources in both camps admitted they may not cross the 50% threshold for outright victory.
“This is a huge disappointment for investors who hope opposition candidate Kilicdaroglu will win and return to the traditional economic policy he promised,” said Hasnain Malik, head of equity research at Telemer.
In the parliamentary vote, the People’s Alliance, including Erdoğan’s Justice and Development Party, was tipping towards a majority, meaning that even if Kilicdaroglu wins the runoff, he will lead a divided government.
Sovereign dollar-denominated bonds issued by Turkey fell sharply by more than 5 cents, while Turkey’s five-year CDS spread jumped 105 basis points to 597 basis points, according to S&P Global Market Intelligence, the highest since November 2022.
The presidential election will determine not only who leads Turkey and shapes the foreign policy of the NATO member of 85 million people, but also how it is governed and how it deals with a deepening cost-of-living crisis.
Last week, Turkish stocks and bonds rose when third-party presidential candidate Muharrem Ince withdrew from the race, boosting expectations that Kilicdaroglu would win.
Analysts expect the lira to decline in the aftermath of the elections, after years of economic imbalance and unorthodox monetary policy.
JPMorgan (JPM.N) expects the lira to drop to 24-25 levels per dollar. Goldman Sachs said in a note in recent days that its calculations showed the market was pricing the lira down 50% in the next 12 months.
The lira has fallen 5% since the beginning of the year, and has lost nearly 95% of its value over the past decade and a half, as sugar-hungry economic policies have led to spectacular boom-and-bust cycles, rampant inflation and currency market turmoil.
A possible second round of elections is scheduled for May 28.
Reporting by Karen Stroeker. Edited by Frank Jack Daniel
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