(Bloomberg) -- Shares of Turkish lenders climbed to the highest level in seven weeks after S&P Global Ratings raised Turkey’s credit outlook to positive in a nod to monetary policy changes.
The Borsa Istanbul Banks Index, which tracks shares of Turkey’s listed lenders, surged as much as 4.6% before trading 3.8% higher as of 11:09 a.m. in Istanbul. Gains on Friday also put the banking index on course for its biggest weekly advance since Sept. 8. Government bonds extended gains, with the yield on the 10-year falling by 55 basis points to 27.2%, while five-year credit default swaps were little changed.
The credit rating company revised Turkey’s outlook to positive from stable, while affirming its B long-term sovereign rating, according to a statement late Thursday. S&P cited “policy progress” toward cooling the overheated economy for its decision and said the rating could be raised “should balance of payments outcomes improve and domestic savings in Turkish lira rise.”
S&P’s surprise revision “will likely lead to higher interest in Turkish assets,” said Orkun Godek, deputy general manager of strategy and research at Deniz Investment.
Turkey’s Outlook Raised to Positive by S&P on Policy Progress
Turkey’s central bank has raised policy interest rate to 40% from 8.5% since the appointment of new economy team after the elections in May, while winding down rules that forced banks to buy government bonds. The new team of technocrats anchored by Finance Minister Mehmet Simsek and Central Bank Governor Hafize Gaye Erkan promised a return to orthodox policies. Data on Thursday showed the Turkish economy cooled in the third quarter.
The broader BIST 100 Index was also up 1.5% on Thursday, while the lira weakened 0.2% to 28.9290 per dollar.
“The continued normalization in monetary policy is shaping market action for short- to mid-term consideration,” said ICBC Turkey Investment’s Burak Isyar in an email. “Inflation is set to continue for some time, helping keep the stock market among lead investment alternatives for local investors.”
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