Once seen as a star emerging market, Turkey's reputation has taken a beating as international investors have sounded alarm over the central bank's failure to rein in double-digit inflation amid a credit boom driven by President Tayyip Erdogan.

The lira has fallen some 8 percent against the dollar so far this year, becoming one of the worst-performing emerging market currencies. It has hit a series of record lows against both the dollar and the euro.

S&P on Tuesday cut Turkey's sovereign rating to "BB-/B" from "BB/B", citing concerns about inflation, lira weakness and rising private-sector debt.

"There is a risk of a hard landing for Turkey's overheating, credit-fueled economy," S&P said. "The ongoing weakness of the Turkish lira is not only fueling inflation, but also amplifying risks related to Turkey's high external debt."

The central bank last week raised interest rates by a more-than-expected 75 basis points, putting its top rate at 13.5 percent. But economists have said that, with inflation in double digits, more convincing increases are needed to put a floor under the lira.

At 1020 GMT, the lira was at 4.1426 against the dollar, weakening from a close of 4.10 on Tuesday. Its record low of 4.1944 was hit last month.

Erdogan, a self-described "enemy of interest rates", has repeatedly called for lower borrowing costs to boost economic growth. He and his ruling AK Party are heading into snap parliamentary and presidential elections on June 24.

Finance Minister Naci Agbal suggested the timing of the downgrade was politically motivated.

"When there is the June 24 process ahead of us, S&P unexpectedly making a statement, which also doesn't fit in with its previous statements, gives the impression that it was made with political aims," he told private broadcaster NTV.

Also weighing on the lira was data showing that the Purchasing Managers' Index (PMI), a gauge of manufacturing activity, had fallen to 48.9 in April, falling below the 50-point line that separates expansion from contraction for the first time after 13 months of consecutive growth.

"The PMI dropped particularly sharply in Turkey, suggesting that a fairly marked slowdown in growth is on the horizon," Capital Economics said in a note to clients.

Separately, data from the customs ministry showed the trade deficit had surged 32.8 percent year-on-year in April to $6.65 billion.