Turkey’s lira weakened for a third day, while bonds and stocks fell, as Moody’s Investors Service lowered the nation’s credit-rating outlook to negative 11 months after upgrading the debt to investment grade.
Foreign demand for real assets may provide some relief for Turkey as it seeks to narrow the second- largest current-account deficit in developing nations amid a graft probe that is sucking cash from financial markets.
Economists are split on whether Turkish monetary policy is looser or tighter after central bank Governor Erdem Basci cut one of his three interest rates while saying he’d use an experimental tool to manage liquidity.
Turkey’s currency and stocks erased losses, with the lira set for a 10-day high versus the dollar, as Finance Minister Mehmet Simsek ruled out capital controls and Russia’s central bank intervened to support the ruble.
Turkish bond yields near the highest in two years once inflation is accounted for are proving insufficient to lure traders seeing the need for further rate increases to shore up the weakening currency.
Turkey’s prime minister said he’ll give the central bank’s emergency interest-rate increase time to succeed in halting a market slump, before trying alternative measures that he said are ready to be deployed.
Latvia’s economy expanded on an annual basis for the first time since the Baltic state was engulfed by the global financial crisis more than two years ago as the European Union’s toughest austerity measures pay off.
When Turkish Central Bank Governor Durmus Yilmaz drove interest rates to a historic low last November, economists said he might keep them there for half a year. Seven months later, there’s no sign he plans to budge from the current 7 percent.