Turkish Lira Drops as Leaders Resist Erdogan on Coalition Talks

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Turkey’s lira weakened and stocks dropped as opposition parties balked at working with President Recep Tayyip Erdogan to form a government, raising concern the nation may head for repeat elections. Bonds fell.

The currency slid 0.9 percent to 2.7389 against the dollar at 6:05 p.m. in Istanbul, the biggest drop among 24 emerging-market peers tracked by Bloomberg. Borsa Istanbul 100 Index fell 2 percent to 78,951.38 points. Devlet Bahceli, who heads the nationalist MHP party, told Hurriyet newspaper that Erdogan should not be involved in forming the next government. Two other parties, CHP and HDP, also opposed engaging with the president.

Voters last week denied the ruling AK Party a majority in parliament for the first time since 2002, fueling concern about the trajectory of policy making for Turkey’s $800 billion economy. Next steps include a minority government, a coalition or a rerun of the poll. Erdogan, who founded and led the AK Party for more than a decade before becoming president in August, has been criticized for his attempts to shift power from the parliament to an executive-style presidency.

“A lack of signals for a strong coalition government may enhance pressure on the lira,” Pinar Uslu, a strategist at ING Bank in Istanbul, said by e-mail. “MHP’s rigid stance and a slight increase in the possibility for repeating elections seems to escalate investor concerns.”

Erdogan ‘Unacceptable’

Erdogan said on Saturday he will first ask the AK Party to form a government and if it fails to do so, he will ask CHP. The president also said he plans to meet political leaders before official talks on government formation begin. CHP leader Kemal Kilicdaroglu said Erdogan’s emergence as the No. 1 actor in coalition talks is “unacceptable.”

The lira weakened 2 percent last week as it tumbled to a record 2.8096 per dollar.

The yield on two-year government bonds rose 16 basis points, the most in a week, to 10.12 percent. The Treasury sold 4.13 billion liras of five-year and 10-year debt in competitive and non-competitive auctions today.

Turkey’s benchmark Borsa Istanbul 100 Index fell the most in a week, led by banks. Turkiye Garanti Bankasi AS and Akbank TAS, the nation’s largest lenders by market capitalization, declined 3.1 percent and 2.3 percent respectively.

“The formation of a government does not seem near yet, and it starts to look more difficult than last week,” Mahmut Dermancioglu, a trader at BGC Partners in Istanbul, said by e-mail.

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