ISTANBUL: Turkey's lira weakened for a fourth session in a row on Thursday with investors sceptical of the central bank's faith the currency can recover without rate hikes.
Ratings agency Fitch's statement that a slowdown in capital inflows may slow Turkish growth also weighed.
Fitch said, however, that the slowdown should not trigger a crisis because of strong public finances.
"At the moment I think the level of growth is too high/not sustainable given the global liquidity setting, and the authorities will need to accept a slightly lower level of growth," Tim Ash from Standard Bank said in a note.
"Until the authorities better rebalance, then the pressure will be for rates to go higher and the currency weaker - kind of what has been happening."
The lira was down at 2.0126 against the dollar by 0832 GMT compared with 2.0048 late on Tuesday. The 10-year benchmark bond yield rose to 9.09 percent from 9.05 percent on Wednesday.
The Turkish central bank has been reluctant to raise rates, fearful of the impact on growth. Instead it has favoured a mix of not holding daily one-week repo auctions and holding forex auctions. It has already spent a fifth of its readily available foreign currency reserves since May to support the lira.
The lira's depreciation trend was intensified by central bank governor Erdem Basci's comments on Tuesday that he did not expect rates to rise and that the lira should recover.
Some economists, however, doubt the lira's 15 percent fall since February is at an end, particularly given Turkey's huge current account deficit. The US Federal Reserve's decision not to cut its bond purchases last week has given Basci some room for manoeuvre.
"On Tuesday he (Basci) eased his tone on FX, and preferred to provide guidance for a longer term, i.e. for 2014. I think this intensified the pressure on the currency," Gokce Celik from Finansbank said.
"Since the central bank announced that they are to keep the short term rates stable, within 6.75 - 7.75 percent band, they already ruled out one of the policy tools that the market expected to be used against depreciation."
Istanbul's main share index was up 0.22 percent at 76,402 points, outperforming wider emerging market peers which fell 0.09 percent.
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