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UPDATE 1-Turkish lira weakens after central bank trims rates
January 22, 2013 / 4:02 PM / 5 years ago

UPDATE 1-Turkish lira weakens after central bank trims rates

* Lira down after cbank cuts rates

* Moody’s says to discuss Turkey’s rating, limits lira’s losses

* Shares down (Adds details, comment)

By Seda Sezer and Nevzat Devranoglu

ISTANBUL, Jan 22 (Reuters) - The Turkish lira weakened on Tuesday after the central bank cut some of its interest rates and raised reserve requirements in a bid to curb loan growth and lira appreciation.

Turkey is hoping another major ratings agency will lift it to investment grade after Fitch did last November, as two such ratings could lead many funds to invest in the country.

Moody’s said on Tuesday it would discuss Turkey “shifting closer” to investment grade at a teleconference next week, keeping losses in the lira limited. It rates Turkey just below investment grade at Ba1.

A Moody’s spokesman declined to comment on market speculation that this meant an upgrade was imminent.

Turkish assets have been boosted recently by a positive economic outlook and expectations of a sovereign rating upgrade.

By 1524 GMT, the Turkish currency was at 1.7706 against the dollar, compared with 1.7635 before the central bank announcement.

The central bank reduced its overnight borrowing rate to 4.75 percent from 5 percent and its lending rate to 8.75 percent from 9 percent. Its one-week repo policy rate, which it cut by 25 basis points in December, stayed at 5.50 percent.

“The main reason behind the central bank decision on cutting the lower band is ... they don’t want speculative capital inflows,” said proprietary trader Tolga Aktan at Yap Kredi Investment.

“On the other hand expectations of a second credit rating upgrade for Turkey limited the depreciation of the lira. As long as rating upgrade expectations continue any action to limit the appreciation of the lira will be limited.”

The central bank also raised required reserves for certain maturities of lira and foreign currency liabilities held by lenders, a move which it said would drain a total of around $1.7 billion of lira and forex liquidity from the market.

The yield on the two-year benchmark bond stood at 5.90 percent, falling from 5.94 percent on Monday.

The main Istanbul share index closed 0.43 percent up at 85,646.87 points. (Writing by Seda Sezer; Editing by Hugh Lawson)

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