Turkish lira surges after opposition wins Istanbul election

Turkey’s lira jumped against the dollar after opposition politician Ekrem İmamoğlu won an election for Istanbul mayor and the government signalled it would not contest the outcome.

Sunday’s election ends a protracted period of political uncertainty in Turkey after the election board agreed to a government demand to rerun the vote, originally won by İmamoğlu on March 31. President Recep Tayyip Erdoğan’s governing party had contested the result claiming irregularities.

“Probably the best outcome for the market – a decisive win, with Erdoğan conceding defeat and İmamoğlu offering to work with Erdoğan,” Tim Ash, a senior emerging markets strategist for BlueBay Asset Management in London, said in emailed comments to clients.

The lira climbed 1.6 percent to 5.72 per dollar at 10:08 a.m. in Istanbul on Monday, reversing losses last week, when investors worried the election would spark more political instability.

İmamoğlu won the election with 54 percent of the vote compared with 45 percent for Binali Yıldırım, a former prime minister and candidate for the governing Justice and Development Party (AKP). His margin of victory widened to 777,000 votes from about 13,000 in March as voters appeared to punish Erdoğan’s government for failing to accept the initial result.

Erdoğan congratulated İmamoğlu, who represents the main opposition Republican People’s Party (CHP), in comments late on Sunday. It is Erdoğan’s biggest election defeat since his party came to power in 2002.

Investors are now expecting the government to implement reforms to help stabilise the economy. Recent data suggests that the economy contracted in the second quarter of the year after bouncing back from last year’s recession in the first three months of 2019. The downturn and the lira’s instability mean Turkey’s banking industry is lumbered with a mounting pile of bad debt. The central bank’s foreign exchange reserves are also depleted and the budget deficit has widened, rendering a year-end goal unachievable, after a series of tax cuts.

Turkish stocks also gained. The main BIST-100 index rose 1.8 percent to 95,671 points.

Attention will also turn to Turkey’s fractured relations with the United States and European Union. Last week, Washington reiterated a threat to impose sanctions on Erdoğan’s government for its purchase of Russian S-400 missiles. Meanwhile, the European Union is preparing its own set of reprisals after Turkey started drilling for natural gas off Cyprus, in a move terms as illegal by Cyprus, Greece and the EU’s political leadership.

Source: Ahval