Turkish lira weakens as Erdogan questions initial election result

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The Turkish lira weakened to as far as 5.7120 against the dollar on Monday after Turkish President Tayyip Erdogan said the margin of votes in Istanbul was too small to claim a victory, stoking fears of a re-election.

The lira weakened more than 1.5 percent from its close of 5.6220 on Friday after Erdogan’s comments, when he repeated that his party seeks a full recount of Istanbul’s votes.

The currency TRYTOM=D3, which stood at 5.7 at 0827 GMT, has been pressured by the initial local election results that showed Erdogan’s AK Party (AKP) narrowly lost control of both Ankara and Istanbul to the main opposition party CHP.

The AKP has already appealed the initial results in all 39 districts of Istanbul, leading to partial or full recounts across Turkey’s largest city.

Last year, the lira lost nearly 30 percent against the dollar on concerns over the independence of the central bank and worsening ties with Washington.

Turkey’s central bank decreased the lira interest rate limit for swap transactions to 24 percent on Monday, from 25.5 percent previously. The bank had set the limit to 25.5 percent on Friday.

Turkey’s central bank on Monday also opened one-week repo auctions for the first time since March 22, when it announced that it would suspend them for a period of time considering developments in financial markets.

The move signaled the central bank had reversed its course of tightening monetary policy by suspending the repo auctions, effectively raising its average funding cost, traders said.

Stocks fell and the yield on the benchmark 10-year bond TR10YT=RR climbed on Monday.

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