Lira Weakens as Investors Consider Turkey Terror Blacklisting

The lira weakened and stocks dropped on concern Turkey could be blacklisted for not following guidelines on anti-terrorism financing at a meeting in Paris this week and after Standard & Poor’s downgraded its outlook.

The currency dropped 0.6 percent to 2.2321 against the dollar at 11:37 a.m. in Istanbul, in its second day of declines. Yields on two-year notes advanced seven basis points to 10.67 percent, while the Borsa Istanbul main index of stocks dropped 1.1 percent. S&P cut Turkey’s outlook to negative on Feb. 7, citing slowing growth, erosion of institutional checks and balances and risk of an economic hard landing.

The Financial Action Task Force, or FATF, which is sponsored by the Organization for Economic Cooperation and Development, meets in Paris this week. The regulator’s black list includes Iran and North Korea. U.S. Ambassador to Turkey Francis Riccardione urged Turkey last February to improve its terror financing legislation, saying existing laws focused on attacks in Turkey and were inadequate when it came to international terrorism.

“What is really worrying the market is the FATF,” Burak Demircioglu, a trader at Burgan Yatirim Menkul Degerler in Istanbul, said in e-mailed comments. “It has a slim chance but if they take Turkey to the black list from the grey list, this would cause a lot of difficulties.”

In 2012, the FATF urged Turkey to tighten laws blocking the financing of terrorist groups or face suspension from the organization. A downgrade by the task force could impede transactions with Western banks.

Turkey’s credit rating outlook was cut to negative from stable on Feb. 17 by Standard & Poor’s, which said there is a growing risk of a “hard economic landing” and cut its Turkey growth forecast to 2.2 percent from 3.4 percent.

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

To contact the editor responsible for this story: Samuel Potter at spotter33@bloomberg.net

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