Turkish Lira Rises Sharply on Erdogan Win -- 2nd Update
June 25 2018 - 2:55AM
Dow Jones News
By Mike Bird
The Turkish lira jumped as currency markets opened Monday, in
the wake of a victory for incumbent President Recep Tayyip Erdogan
in Sunday's presidential and parliamentary elections.
The lira rose by as much 3% against the U.S. dollar and euro as
European trading hours began, rising to its strongest level in
about two weeks.
With all but 2% of Turkish ballots counted, Mr. Erdogan received
52.5% of the vote, enough to avoid a second runoff election. In
addition, Mr. Erdogan's party secured a majority in parliament.
But many analysts suggested that any relief rally for the
currency would be short-lived, as investors will now turn to
lingering long-term concerns about the Turkish currency.
"In the past, Turkish assets have responded positively to
political events that were perceived as increasing political
stability," analysts at Goldman Sachs said in a note before the
election.
"However, President Erdogan's comments on monetary policy during
the election campaign--advocating lower interest rates and
indicating that he would play a more active role in monetary
policy--have raised concerns over the future direction of monetary
policy in the event of this outcome," Goldman said.
Mr. Erdogan has described high interest rates as "the mother and
father of all evils." Investors have expressed concern that his
preference for lower rates is preventing the country's central bank
from supporting the currency and soothing inflationary
pressure.
In the last 10 years, the Turkish currency has lost nearly three
quarters of its value against the dollar.
"The recent financial market turmoil means that a sharp slowdown
is [in] the cards," said Jason Tuvey, senior emerging markets
economist at Capital Economics. "The risks stemming from the
election are more likely to materialize over the longer term--in
particular, the risk that an Erdogan-AKP government pursues much
looser fiscal and monetary policy."
A decline in oil prices may have contributed to the recovery of
the lira on Monday. The country is a large importer of crude oil,
which is denominated in dollars. Brent crude oil prices fell 1.7%
Monday to $74.05 per barrel, following a Russia-backed deal by the
oil-exporting nations of OPEC to increase output.
Elsewhere in currency markets there were few large moves, with
the ICE U.S. Dollar Index roughly flat from its level Friday. The
dollar fell slightly against the Japanese yen, dropping 0.4% to
Yen109.52
Write to Mike Bird at Mike.Bird@wsj.com
(END) Dow Jones Newswires
June 25, 2018 02:40 ET (06:40 GMT)
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