Turkish Assets Extend Slump as Policy Uncertainty Spooks Markets

(Bloomberg) -- Turkey’s bonds and stocks slid for the second day and the lira approached a two-week low amid growing investor unease over President Recep Tayyip Erdogan’s expanded grip over the economy.

Local markets declined as a report showed that the nation’s current-account deficit widened to $5.9 billion in May, exceeding the $5.3 billion estimated by economists in a Bloomberg survey. Turkey’s large external financing needs leave its assets exposed to shifts in investor sentiment and tightening global monetary conditions in the world’s largest economies.

The yield on 10-year Turkish government bonds jumped 44 basis points to a record high of 18.05 percent, after Tuesday’s 54 basis point surge. The benchmark stock index dropped 1.7 percent, adding to the previous session’s 3 percent plunge. The lira fell as much as 1 percent to 4.7535 per dollar.

Erdogan, who was sworn in Monday as Turkey’s first executive president with expanded powers, has appointed his son-in-law as the nation’s chief economic policy maker and assumed exclusive power to name the central bank governor. That’s fueling investor concern that the new administration may not steer the economy on a sustainable path.

The president holds the unorthodox view that lower interest rates help slow inflation. Investors and analysts say the economy needs to cool, and that monetary policy needs to remain sufficiently tight to tame consumer-price increases that are running at more than three times the central bank’s target.

To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Anil Varma, Keith Jenkins

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