x Abu Dhabi, UAEFriday 28 July 2017

Euro-zone concerns push lira even lower

Turkish currency has hit critical sell-off point, says trader.

The Turkish lira continued to slide as investors worry that problems in the euro zone are not yet contained.

The lira dipped 0.7 per cent to 1.5048 per dollar in afternoon trading in Istanbul.

"The lira has reached a critical point. Normally local investors are always sellers around these levels," said Gurol Ozer, the head of fixed income and trading at Denizbank in Istanbul.

The lira has dropped 7.9 per cent since November 4 as worries about the financial health of Ireland, Spain and Portugal also hurt investor sentiment in eastern European economies such as Turkey, which emerged from the global financial crisis without a bailout.

The country's benchmark two-year bonds also dropped, pushing yields up 5 basis points to 7.69 per cent, according to an ABN Amro index. The main ISE National 100 index decreased 1.5 per cent to 66,679.04.

Ireland's credit rating was cut three notches by Fitch, which cited the mounting cost of rescuing Ireland's banking industry.

The downgrade had a direct effect on the drop in the Turkish currency, Mr Ozer said.

Turkey survived the global crisis without bailing out any banks and this year Recep Tayyip Erdogan, the prime minister, ended loan talks with the IMF saying Turkey can meet its borrowing needs without external assistance.

The ratio of debt to GDP will decline to 42.3 per cent this year from 45.5 per cent last year, according to the government's economic programme.

Fitch upgraded its outlook on Turkey to one step below investment grade. Moody's Investors Service, which rates Turkey two levels below at investment grade, made a similar change in October.

Turkey's central bank governor Durmus Yilmaz also warned this week that hot money flowing into the economy may drive policymakers to cut the key interest rate from the current record low.

* with Bloomberg