May 30, 2018 / 8:21 AM / 6 months ago

Turkish lira firms, shrugging off Moody's after economy officials meet investors

ISTANBUL, May 30 (Reuters) - Turkey’s lira hit its firmest level in nearly two weeks on Wednesday, a day after top economic officials met with investors in London in an attempt to soothe concerns about the direction of monetary policy under President Tayyip Erdogan.

The lira’s recent recovery - it has now firmed for three straight sessions - came after a market rout last week that forced the central bank to hike rates by 3 percentage points at an emergency meeting. It has since announced plans to move to a single policy rate, something long sought by investors.

Still, the market remain cautious. Ratings agency Moody’s on Wednesday slashed its forecast for Turkey’s 2018 economic growth to 2.5 percent from 4 percent previously, citing the sell-off in the lira and the impact of double-digit inflation on growth.

“There was the rate hike last week and this week they announced the central bank would simplify its policy framework,” said Per Hammarlund, chief emerging markets strategist at SEB.

“This suggests the central bank will be more autonomous when it sets interest rates and monetary policy – it could change in future but for now it signals the central bank will be more independent and that’s very good news for the lira.”

The lira was at 4.4930 to the dollar at 0812 GMT, firming some 1 percent and not far off its firmest since May 18. Last week it hit a record low of 4.9290, prompting the emergency move by the central bank.

The main stock index was little changed.

Deputy Prime Minister Mehmet Simsek and Turkish Central Bank Governor Murat Cetinkaya met with investors in London on Tuesday.

At the meetings they dialled back on Erdogan’s combative messages on interest rate policy and insisted the central bank has freedom to defend the lira, according to investors who met them.

On Wednesday Simsek said on Twitter that the meetings were “beneficial” and that Turkey would prioritise the fight against inflation and the current account deficit.

Separately, official data showed that the economic confidence index fell to 93.5 points in May, further easing from a five-month high in January. (Additional reporting by Claire Milhench in London Editing by David Dolan)

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