Lira Falls First Day in Seven After S&P Cuts Outlook to Stable

The lira weakened for the first time in seven days as Standard & Poor’s said Turkey is the “most vulnerable” in eastern Europe to capital outflows a day after it cut the country’s credit ratings outlook.

The lira depreciated 0.5 percent to 1.7636 per dollar at 6:18 p.m. in Istanbul, snapping its longest streak of gains since October. The yield on two-year benchmark debt rose two basis points, or 0.02 percentage point, to 9.34 percent.

Turkey is the most vulnerable of all developing nations in Europe to “sudden financial account outflows,” S&P said today. The company cited less-buoyant external demand and worsening terms of trade as reasons behind the downgrade of the country’s long-term foreign and local currency ratings outlook to stable from positive yesterday. Turkish bond and stock markets were closed for a public holiday yesterday.

“S&P’s decision is the last nail in the coffin for sporadic speculators of Turkish rating upgrade,” Istanbul-based Oyak Securities said in an e-mailed note.

The downgrade indicates there is “a less than one out of three likelihood of an upgrade” over the next 12 months, the rating company said in an e-mailed statement sent to Bloomberg today. It affirmed Turkey’s long-term foreign currency sovereign credit ratings at BB, the second-highest non-investment grade.

Fitch Ratings cut Turkey’s long-term foreign currency outlook to stable from positive in November, citing the country’s burgeoning current-account deficit. It rates the country at BB+, one step below investment grade. The nation’s foreign-currency debt is rated Ba2 by Moody’s Investors Service, the equivalent level to S&P’s, with a positive outlook.

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

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