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Turkey's Lira Hits Low as Coalition Talks Collapse

FILE - Turkish liras, center, featuring images of Turkish Republic founder Mustafa Kemal Ataturk, among other foreign currency, Istanbul, June 8, 2015.

The Turkish lira sank to all-time low following Thursday’s sharp selloff, sending stocks and bonds tumbling as the country faces its second parliamentary election this year after talks between its two biggest parties collapsed.

Market watchers had been hoping a grand coalition would be formed between President Recep Tayyip Erdogan's AK party and pro-business opposition CHP, but now the stage has been set for a snap election some time this fall. It's not good news for an economy already dealing with bearish investor sentiment.

Firday's lira nadir prompted the central bank to step in and tweak some policy tools in an attempt to shore it up.

Atilla Yesilada, a consultant for Global Source Partners, says international markets now fear the country has entered a troubling new era.

"Near panic, I'm afraid," he said. "It’s not the final pricing, it's the recognition that Turkey’s 13-year era of political stability is now permanently over. And it's left behind so much debris and hubris, that even at a time like this, even when Turkey is surrounded by a ring of fire, politicians can’t compromise."

Adding to investor concern are opinion polls that predict little change from the June poll. November is the earliest a new election could be held, and it would unfold as Ankara has declared a war against Kurdish PKK rebels and the Islamic State.

An early poll could be averted if the AK Party forms a coalition with the nationalist MHP, but MHP's leader, Devlet Bahceli, has rejected previous overtures. Political scientist Cengiz Aktar of Istanbul’s Suleyman Sah University, warns that an early election is likely only to add to the country’s wider economic woes.

"The economy already lacks structural reforms and now Turkey is in a down spiral," he said. "Growth is slowing down, so the election will just add to it."

The sluggish economy is cited as a reason behind the AK Party losing its majority in the June election. Some analysts claim increasingly negative sentiment by international investors towards emerging markets in general could add to Turkey’s difficulties.

Portions of this report are from Reuters.