ISTANBUL: The Turkish lira plumbed another record low against the dollar Tuesday, as investors punished the currency on fears of rising political instability ahead of the June 7 parliamentary election.
While the resurgent dollar has hit emerging market currencies across the board, the lira has stood out for its underperformance, hurt by worries about both political meddling in monetary policy and the make-up of Ankara's economic team after the election.
In addition, analysts are now faced with the possibility of a coalition government after the elections, also seen as a negative.
"Turkey's risk premium is on the rise," said Isik Okte, investment strategist at TEB Invest.
"We are concerned about the degree of this negative divergence in the lira and suspect that it is not only the make-up of the economics team post-general elections or the worsening growth dynamics at play here."
The lira touched a low of 2.6740 against the dollar before recovering slightly to 2.6681, down from 2.6542 late Monday.
The lira has lost 12 percent to the dollar this year, the worst performer among all major emerging market currencies apart from Brazil's real.
Prime Minister Ahmet Davutoglu has indicated that well-respected economy chief Ali Babacan would not be a minister after the June election - potentially bad news for an economy expected to grow 3 percent this year, below the government's target.
President Tayyip Erdogan has also bruised sentiment by fulminating against high interest rates, comments which have raised concern about the independence of the central bank.
TEB Invest's Okte said some opinion polls suggest the ruling AK Party may not win enough seats to form a single-party government.
"In Turkey's recent democratic history, coalition governments, 99.9 percent of the time, have been viewed by market participants as negative because of their overall incompetence in managing the economy," he said.
Shares also fell, with the main Istanbul share index dropping 0.61 percent to 81,434 points. The blue-chip BIST 30 index has fallen 6.7 percent this year.
In dollar terms it is down 18.5 percent, according to Thomson Reuters data, making it the worst performer among 30 emerging market share indices this year.
The benchmark 2-year government bond yield rose to 9 percent from 8.89 percent at the spot close on Monday and compared with around 8 percent at the start of the year.