Turkish Lira Flat After Crashing to Record Low on Credit Downgrade

The  Turkish lira is trading relatively flat against the  US dollar on  Tuesday. The  lira crashed to  a  record low on  Monday after one of  the  world’s premier credit ratings agencies slapped Turkey with a  credit downgrade and  geopolitical tensions between Turkey and  Greece escalate. After cratering to  an  all-time low this past spring, does this mean the  lira can suffer another record low this year?

On  Monday, Moody’s Investor Services downgraded Turkey’s credit rating from “B1” to  “B2,” warning of  a  deeper financial crisis. The  agency listed the  country’s external vulnerabilities that could lead to  a  balance of  payment calamity, adding that its fiscal tools are eroding.
The ratings group added that the central bank’s foreign exchange reserves compared to the gross domestic product are at their lowest levels in decades. The central bank has been doing everything to prop up the lira, including raiding its forex reserves, which presently stand at $44.8 billion, down from more than $80 billion at the start of 2020.
As  a  result, Moody’s cut is bringing Turkey’s sovereign rating closer to  junk territory. Overall, Moody’s is maintaining a  negative economic outlook.
President Recep Tayyip Erdogan dismissed the  news, although he misdirected his attack on  Standard and  Poor’s. Erdogan stated in  a  speech:

S&P, get a  grip on  yourself. You cannot push Turkey around with economic sanctions. You did that before. Did you get a  result? No, you didn’t. You won’t do in  the  future either.

On  the  data front, retail sales surged 9.5% in  July, down from the  18% spike in  June. The  higher retail sales for  the  third consecutive month suggested that domestic demand is recovering. The  Turkish economy reported gains in  food and  beverages, electronics, household goods, automotive fuel, and  apparel.
In  July, industrial production advanced at  an  annualized rate of  4.4%, beating the  market forecast of  3%. This is also up from the  tepid 0.4% jump in  the  previous month. Automobile output also skyrocketed 44.3% year-over-year last month, up from the  11.8% contraction in  July.
The  USD/TRY currency pair rose 0.05% to  7.4913, from an  opening of  7.4881, at  19:23 GMT on  Tuesday. The  EUR/TRY dropped 0.06% to  8.8767, from an  opening of  8.8828.
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