June 8, 2018 / 6:09 AM / 16 days ago

Turkish lira eases after gains following rate hike

ISTANBUL, June 8 (Reuters) - The Turkish lira surrendered some gains early on Friday, a day after rallying in the wake of the central bank’s larger-than-expected 125 basis point hike in its policy rate.

The lira stood at 4.4955 against the dollar at 0600 GMT, easing from a close of 4.4850 on Thursday. It has weakened 15 percent this year but is well off a record low of 4.9290 which it hit before a previous rate hike on May 23.

At Thursday’s monetary policy committee meeting, the bank raised its one-week repo rate to 17.75 percent, just over two weeks after a 3 percentage point tightening after inflation spiked.

Last month’s slide in the lira was driven by concerns that President Tayyip Erdogan will exert more influence on monetary policy after elections on June 24 that will herald a switch to an executive presidential system.

Erdogan, a fierce critic of high interest rates, wants to spur credit growth and construction with lower borrowing costs in order to boost economic growth. Economists fear the economy is overheating.

On Thursday evening, Moody’s downgraded and placed on review for further downgrade the ratings of 17 banks and placed on review for downgrade the ratings of two finance companies.

“The downgrades reflect Moody’s view that the operating environment in Turkey has deteriorated, with negative implications for the institutions’ funding profile,” the Moody’s statement said.

Deputy Prime Minister Mehmet Simsek subsequently wrote on Twitter that Turkish banks are well-capitalised and have a strong asset quality and that the country’s banking sector was profitable.

The yield on the benchmark 10-year bond was at 15.26 percent in spot trade on Thursday and fell to 14.95 percent in Friday-dated trade.

The main BIST 100 share index rose 2.03 percent to 98,623.65 points on Thursday. (Reporting by Daren Butler Editing by Dominic Evans)

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