Turkish Lira Slide Deepens as PM Says Coalition Talks Failed

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Turkey’s lira weakened to a record for a third day after acting Prime Minister Ahmet Davutoglu said his party had exhausted all possibilities to form a coalition government, putting the country on course for fresh elections.

The lira depreciated as much as 1.2 percent to 2.8678 per dollar, before trading at 2.8635 at 6:56 p.m. in Istanbul. Speaking after his meeting with MHP’s leader Devlet Bahceli in Ankara, Davutoglu said the opposition party wouldn’t support a short-term government with his own AK Party, a minority AK Party government, or early elections.

Turkey’s currency has lost 3.1 percent since similar talks between the country’s two biggest political parties, AK Party and CHP, broke down on Thursday, raising the prospect of the second parliamentary election in a year. The central bank will meet tomorrow to decide on interest rates amid a rout in emerging-market currencies as the U.S. Federal Reserve considers raising bprrowing costs for the first time since 2006 and after China devalued the yuan.

“The process to build a coalition is essentially dead, with the last nail in the coffin coming from MHP Leader Bahceli,” Cristian Maggio, the head of emerging market research at Toronto Dominon Bank in London, said by e-mail. He sees the lira depreciating to 3 per dollar in the short term and about 3.30-3.35 in the coming four to ten months.

Earlier Turkey’s economy minister helped fuel the lira’s drop when he said there was no need for intervention to halt the currency’s slide. Concern over Turkey’s exchange rate has no basis and intervention should not be considered, Nihat Zeybekci told journalists in Istanbul.

“Comments from prominent officials suggest that the establishment is not seriously concerned with a weaker currency,” said Piotr Matys, a London-based foreign-exchange strategist at Rabobank, who predicts the lira will trade around 3 per dollar by year-end. “Such comments will only encourage speculators to bet against the lira.”

The yield on two-year government bonds climbed 10 basis points to 10.28 percent, the highest since June. The Borsa Istanbul 100 Index of stocks dropped 0.5 percent to the lowest since March 13.

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