Turkish lira weakens as markets focus on economic policy outlook

ISTANBUL: The Turkish lira eased against the dollar on Tuesday on investor concerns that Prime Minister Tayyip Erdogan's victory in Sunday's presidential election could have an impact on monetary policy and the make-up of the economic management team.

In comments that unsettled investors on Tuesday, Economy Minister Nihat Zeybekci, who is responsible for foreign trade, criticised Fitch ratings agency for underlining political risks in a report published on Monday.

The lira eased to 2.1618 against the dollar by 0908 GMT from 2.1479 late on Monday, while the benchmark 2-year government bond yield rose to 9.43 percent from 9.31 percent late on Monday.

The main Istanbul share index traded 0.89 percent higher at 77,956.97 points, outperforming the main emerging market benchmark which traded 0.25 percent higher.

President-elect Erdogan has begun the process of picking his successor as prime minister, a figure he hopes will triumph in next year's parliamentary election and secure his goal of forging a powerful presidency.

As prime minister, Erdogan has overseen a decade of growth and stability after a long period of economic chaos and political drift. Deputy Prime Minister Ali Babacan, who is in charge of the economy, helped to ensure the success of the AK party's 12-year rule.

But Babacan's future role is unclear, and pressure from Erdogan on the central bank to keep cutting interest rates - despite high inflation and expectations that U.S. monetary policy will soon tighten - seems unlikely to ease.

Ratings agency Fitch said political risk would weigh on its credit ratings through its potential to discourage capital inflows and reduce policy predictability.

Zeybekci, on his Twitter account, said: "It takes illiteracy and blindness to ignore the intention of Fitch's evaluation.

"It's not possible for us to take seriously an institution that makes political risk warnings the morning after our history's most important, democratic and clear elections."

Timothy Ash of Standard Bank said: "Unfortunately the minister's comments are very damaging for market sentiment - as reflected in the performance of the 2-year benchmark bond this morning - higher by 17 basis points."

"The problem is that the market is uncertain now who will be PM, and who will assume the key positions covering the economy in the new cabinet," he said.

Standard & Poor's said late on Monday it expected no effect on its rating on Turkey from the presidential election result, saying it expected the "general direction of macroeconomic policymaking to remain unchanged".