ISTANBUL, April 1 — The erosion of Turkey's foreign currency reserves is a credit negative and central bank use of reserves to prop up the lira currency poses renewed questions on its transparency and independence, Moody's Rating Agency said on today.

"Intervention to support the lira is contrary to the central bank's longstanding policy to allow the exchange rate to float freely and poses renewed questions about the transparency and independence,” Moody's said in a note.

The renewed slip in Turkey's financial markets and uncertain policy reaction to recession raises a risk of further capital flight, Moody's said, adding that the results of local polls will likely determine the future path of macroeconomic policy.

Turkish lira stood at 5.6275 against US dollar at 0357 GMT, but its slip on March 22 marked its worst performance since August when a full-blown crisis took hold and tipped Turkey's economy into a recession that could last deep into this year.

"This weekend's municipal elections results will likely determine the future path of macroeconomic policy and therefore whether the latest market shock persists or dissipates.”

Turkish President Tayyip Erdogan suffered a severe setback as his ruling AK Party lost control of the capital Ankara for the first time in a local election and he appeared to concede defeat in the country's largest city, Istanbul. — Reuters