12th Aug 2022

Turkish markets hit by election results

  • Istanbul stock exchange lost almost 6 percent and the Turkish Lira hit a new low on Monday because of political uncertainties. (Photo: tayfun)

Turkey faced a near market crash on Monday (8 June) after ruling Justice and Development Party (AKP) failed to win a majority in Sunday's general election, raising fears about the country's political stability.

The Istanbul stock exchange opened with an 8 percent loss Monday morning and lost almost 6 percent at the close, while the Turkish Lira lost 5 percent and reached a new low, at 2.75 Lira for 1 Dollar and 3.11 for 1 Euro.

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The Lira's fall was contained by Turkey's central bank's decision to cut foreign exchange deposit rates. But the country's currency, which already lost 15 percent to the dollar since the start of this year, could remain under pressure in the coming weeks.

Yields for Turkish bonds also went up, with the 2-year bond going past the 10 percent threshold.

Markets reacted negatively to the elections results that left president Erdogan' AKP with no majority for the first time since 2002 and no obvious coalition partner.

The pro-Kurdish Peoples' Democratic Party (HDP), which won 80 seats and came out as the election's main winner, has ruled out any coalition with the AKP.

The Nationalist Movement Party (MHP) is considered to be the most likely coalition partner for the AKP, but the AKP could also try to continue to rule with a minority government.

Prime minister Ahmet Davutoglu, who is due to meet Erdogan on Tuesday, will have forty-five days to form a government and new elections are not ruled out.

The period could create instability for an Turkish economy that benefited much from Erdogan's rule and AKP links with business.

The economy needs to diversify from construction and basic goods to higher-value goods and a more open financial system but investors say this evolution requires a stable political environment.

The political uncertainties could also weigh on relations with the EU, Turkey's top import and export partner.

In a statement Monday, EU chief diplomat Federica Mogherini and enlargement commissioner Johannes Hahn said that "the coming period offers opportunities for further strengthening the EU-Turkey relationship".

On Turkey's stalled EU membership negotiations, a commission spokesperson said: "You’re aware of the parameters on our side,” adding that “it will be for the new Turkish government to take this forward.”


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