Turkish Lira Snaps Three-Day Gain After Moody's Spain Downgrade, Oil Rises

The Turkish lira weakened, snapping a three-day rally, and stocks dropped after Spain’s rating was downgraded by Moody’s Investors Service and violence in Libya drove up oil prices.

Turkey’s currency depreciated 0.3 percent to 1.5855 per dollar at 11:29 a.m in Istanbul. The ISE National 100 Index (XU100) of stocks fell 0.4 percent to 62,265.87, snapping two days of gains. Yields on two-year bonds fell 4 basis points to 8.97 percent, according to the RBS Istanbul Benchmark Bond Index.

Turkey imports almost all its energy needs and higher oil prices threaten to push up inflation, slow growth, and widen a current-account deficit that hit a record in December. Violence in Libya, Africa’s biggest oil producer, has sent Brent crude to around $115 per barrel, compared with the Turkish central bank forecasts for $95 a barrel this year.

“One of the prevailing factor hurting the lira at present is the surge in oil amidst Middle East and North Africa political unrest,” Elisabeth Gruie, emerging market strategist at BNP Paribas in London, said in e-mailed comments. “Not only does the strong oil price worsen the current account outlook but it will start to erode growth prospects for Turkey.”

Moody’s Investor Services lowered its credit rating for Spain by one step to Aa2, the third highest investment-grade ranking, and assigned a negative outlook to the debt, according to a statement released today. Moody’s said the cost of shoring up Spain’s banking industry will be more than the government expects.

Turkey’s current-account deficit widened in December to $7.5 billion, the biggest since records began in 1984. A year earlier it had been $3.2 billion. The deficit will widen further in the coming months, central bank governor Durmus Yilmaz said yesterday in Istanbul.

The central bank is due to publish January current account data at 10 a.m. tomorrow.

To contact the reporter on this story: Selcuk Gokoluk in London at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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