ISTANBUL: Turkish bonds and the lira gained on Thursday after Fitch Ratings said it may lift the country's long-term rating to investment grade if makes progress on economic growth, inflation and the current account deficit.
Fitch said in its report on the Turkish economy that it was on track for a soft landing and was likely to skip a recession after overheating last year, when it expanded by 8.5 percent and the current account deficit hit a record.
The yield on the two-year benchmark bond fell four basis points to 7.66 percent after the Fitch statement before closing at 7.70 percent.
The lira strengthened to 1.7935 against the dollar from 1.7955. Against its euro-dollar basket , the lira stood at 2.0237, from 2.249.
Fitch could upgrade Turkey's long-term issuer default ratings to "BBB-" from "BB+" if the country continues to make progress towards its potential growth rate, it said.
It warned, however, that a "material worsening" in the euro zone crisis could hit Turkey's capital inflows, needed to rein in its current account deficit to a government forecast of 8 percent this year.
Turkey targets gross domestic product growth of 4 percent.
"This is the first time Fitch has emphasised a (possible) ratings upgrade," Gizem Oztok Altinsac, economist at Garanti Securities, said in e-mailed remarks.
"Let's just say that the report is extremely clear and positive regarding the priorities."
The main share index dipped 0.04 percent to 66,079.48.
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