Turkish markets surrendered early gains today as concerns over the direction of economic and monetary policy weighed on sentiment after President Tayyip Erdogan and his AK Party won presidential and parliamentary elections. 

Erdogan emerged triumphant overnight from his biggest electoral challenge in 15 years.

The win gives him the sweeping executive powers he has long sought and extending his grip on the nation of 81 million until at least 2023. 

The lira weakened slightly to 4.68 against the dollar with volatile trade from Friday's close of 4.6625. 

It had firmed to as much as 4.5375 against the greenback in early trade and then weakened to 4.7235 during the afternoon.

Analysts said that in the short term, markets may be relieved that a period of political instability has been avoided. 

But any rally could quickly go into reverse if President Erdogan uses his strengthened position to pursue looser fiscal and monetary policy, as we fear is likely, they added. 

Erdogan took 52.6% of the vote in the presidential race, with almost all votes counted. 

His AK Party took 42.5% in the parliamentary election and its nationalist allies beat expectations with 11.1%, giving their alliance a legislative majority. 

Investors welcomed the prospect of a stable working relationship between the president and the new parliament, although concerns remained over Erdogan's policy promise. 

The lira has lost 18% against the dollar this year, mainly due to worries about the central bank's independence in the face of increased influence from Erdogan, who wants lower interest rates to boost economic growth. 

Turkey's central bank has delivered 500 basis points of tightening since late April as it seeks to put a floor under the lira in the face of double-digit inflation. 

Analysts said markets would be sensitive to any fresh comments by Erdogan on the role of the central bank and indications of political interference. 

"Looking further ahead, Turkey requires structural reforms to reduce its chronic reliance on speculative capital inflows to finance the current account deficit," they added.

Garret Grogan, Global Head of Trading at Bank of Ireland Global Markets, said the initial reaction as markets reopened this morning was a relief rally for the lira.

But he said that nagging concerns regarding risks of erosion in the independence of the central bank, further consolidation of executive power and the weakening of fiscal policy remain big medium term concerns.
 
"Capital flight out of Turkey from both locals and internationals has been on the rise since 2016's fail coup, weighing on the Turkish lira and this weekend's decision is unlikely to change that as Erdogan had pledged to take control of economic policies more directly during campaign speeches," Mr Grogan said. 

"Added to this, the recent relationship between Turkey and the EU has been increasingly fractious and another term for president Erdogan probably means a lower probability of a normalisation in his relationship with western counterparts," he added.