Standard & Poor’s raised its local-currency sovereign ratings on Turkey to BBB-/A-3, an “investable” level, on Tuesday, just one day after it cut Italy’s rating due to the European country’s fiscal and political weaknesses.
The rating agency kept the foreign-currency sovereign rating on Turkey at BB, two levels below investment grade.
“The local-currency upgrade reflects our view of continuing improvements in Turkey’s financial sector and the deepening of local markets,” Frank Gill and Leila Butt, London-based analysts at S&P, wrote in a statement on Tuesday.
Gill is scheduled to join a press meeting in Istanbul on Wednesday on the agency’s new presence in Turkey along with Yann Le Pallec, head of corporate and government ratings in Europe, Middle East and Asia.
Warning on external financing position
The higher rating for local-currency debt “says that they are less worried by public finances, but are still worried by the external financing position,” Timothy Ash, chief emerging-markets economist at Royal Bank of Scotland Group, said in an e-mailed statement. “Still welcome news.”
“I was expecting such a decision but it is not enough,” said Turkish Economy Minister Zafer Çağlayan in a written statement after the decision. “Our foreign-currency investment rating should also be upgraded.”
With its strong political and economic stability, Turkey deserves more, according to the minister.
The upgrade will help boost foreign investment in the country, Çağlayan said, calling the $9.1 million foreign direct investments in the first seven months of the year an early indicator.
The Istanbul Stock Exchange’s main ISE 100 index gained more than 5 percent on Tuesday nearing 62,000. Vedat Akgiray, president of the Capital Boards Market, or SPK, said the S&P move was in point. “Personally, they could upgrade Turkey’s note to a higher degree. It’s not a surprise.”
According to Özgür Altuğ, chief economist at BGC Partners, , the upgrade may result in four things: the Turkish Treasury could issue long-term Turkish Lira denominated eurobonds from now on, the Turkish corporate could borrow via lira-denominated instruments from international capital markets, the cost of lira borrowing could decline, and the current account deficit financing quality could improve slightly because of longer-term lira borrowing.
“We remember years ago Brazil doing its first 30-year real-denominated eurobond issue and it was very successful,” he said in a note. “Now might be the time for Turkey.”
Fitch keeps on observing
Botan Berker, general manager of Fitch Turkey, meanwhile, said his agency’s “wait and see” policy to raise Turkey to investable continued. Speaking to broadcaster CNBC-e, Berker said what was important for a country was the foreign-currency sovereign rating.
“We could raise the ratings on Turkey if, once the economy cools as we expect, it can reduce its current account deficit and slow its domestic credit growth without too badly affecting its fiscal accounts or financial-sector stability,” the S&P statement said. “We could also raise the ratings if deeper reforms to social security resulted in a stronger fiscal performance that started to substantially reduce the government’s debt.”
Bank sells $350 million
Turkey’s Central Bank sold $350 million for Turkish Liras to banks at an average price of 1.7966 liras per dollar in an auction on Tuesday, in the biggest sale since it started the auctions on Aug. 5.
The Bank also kept the key interest rate unchanged 5.75 percent and lending rate at 9 percent on Tuesday.
After a meeting of the Monetary Policy Committee, the bank said in a statement that figures published recently indicate that Turkey’s growth speed will slow down in the second half of 2011.
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Source : hurriyetdailynews.com
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