More capital flight lies ahead for Turkey as Erdogan's party calls for new city elections, analysts predict
Turkey's lira fell to a six-month low against the dollar this week as President Recep Erdogan's ruling AK Party formally requested a new election for the city of Istanbul, where current tallies show it lost by a slim margin in local elections last month.
At one point on Tuesday the lira was trading as much as 5.82 to the greenback, a level not seen since October, before inching back to 5.74 on Wednesday morning Istanbul time. For perspective, a dollar bought just 3.5 lira in mid-2017. Turkey's March 31 elections, while not a vote for the president, were largely seen as a referendum on Erdogan's performance — and his right-wing AK Party suffered bruising losses in capital Ankara and commercial hub Istanbul after 25 years in power in both cities.
Erdogan has espoused keeping interest rates down despite rising inflation, currently at more than 19 percent. Investors fear he will continue to pursue populist monetary policy after his party's unprecedented defeat in the local elections. "The government is still lacking a viable strategy to promote financial stabilization," Larry Brainard, chief emerging markets economist at TS Lombard, wrote in a note this week.
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