The Turkish lira plunged for the third consecutive day as stocks and bonds declined after Moody’s Investors Service revised downwards the country’s credit rating to negative 11 months after earlier assigning its debt as investment grade.
Moody’s reduced the country’s outlook from stable, pointing to “increased pressure on the country’s external financing position led by heightened political uncertainty and lower global liquidity” that affected investor optimism. The rating agency had earlier revised Turkey’s outlook to Baa3 in May 2013, which was the weakest investment grade and same level as Ireland and India.
The lira plunged 0.5 percent to trade at 2.1175 per dollar as of 1:49 p.m. in Istanbul, which was the lowest decline of the 24 emerging-market currencies analyzed by Bloomberg. The lira has so far advanced 3.5 percent after Prime Minister Recep Tayyip Erdogan’s party clinched victory in the March 30 elections. The Borsa Istanbul 100 Index plunged 0.7 percent, while 2-year note yields advanced 7 basis points to trade at 9.9 percent.
The move comes after Standard & Poor’s downgraded Turkey’s credit rating to negative last February, pointing to a “hard economic landing” based on declining foreign currency reserves, while central bank officials argue over the right benchmark interest rates to set. So far S&P rates Turkish bonds as the strongest non-investment grade.
Turkish foreign capital inflows amounted to $1.3 billion in the week ending April 4, the strongest since October 25, based on central bank data. Turkey was rated investment grade for the first time in 18 years on November 2012 from Fitch Ratings. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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