According to S&P Global Ratings, if Turkey's central bank (CBRT) continues with its monetary policy easing cycle, authorities might have to permit further depreciation of the lira. By using "borrowed" reserves to defend its exchange rate, S&P continued, the CBRT risks further damaging confidence in the lira and could raise financial stability questions.

The weaker lira will negatively affect Turkey's sovereign balance sheet and recent developments could present downside risks to the country's current rating which remains at B+ with stable outlook, S&P said. Turkey has seen a "significant amount of quasi-fiscal activity" via state banks, and if those banks ultimately run into trouble they may need considerable capital support, the rating agency concluded. 

Market Reaction

The comments arent too surprising given recent developments in the Turkish economy/exchange rate. At present, USD/TRY is consolidating slightly to the south of the 13.50 level.