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S&P changes Turkey’s outlook to ‘negative’ amid high deficits

REUTERS/Murad Sezer
The ratings agency maintained the country's sovereign credit rating at 'B'

S&P Global Ratings revised its outlook for Turkey to “negative” from “stable” on Friday, citing vulnerabilities from the country’s low policy rates, directed lending and regulatory control on its foreign currency positions and interest rates.

Turkey continues to grapple with soaring prices of goods and services. And a devastating earthquake that hit the country earlier in February is expected to keep inflation elevated in the run-up to the presidential and parliamentary elections on May 14.

Turkey’s central bank, on February 23, cut its main interest rate to 8.5 percent to cushion the impact of the earthquake on its economy.

“Given Turkey’s elevated current account deficits, limited usable reserves, high inflation and reliance on occasional capital inflows, the outlook for the exchange rate remains, at best, uncertain,” S&P said in a statement.

The ratings agency maintained the country’s sovereign credit rating at ‘B’.

Late March the Turkish central bank said the current monetary policy stance was adequate to support recovery following last month’s earthquake by maintaining price stability and financial stability.

Even before the quakes analysts said there could be more easing ahead of the May 14 presidential and parliamentary elections, in which President Tayyip Erdogan faces the biggest political challenge of his two-decade rule.

A self-described “enemy” of interest rates, Erdogan has urged monetary stimulus over the last several years to boost growth and exports, though it set off a series of lira crises and stoked prices.

In a Reuters poll, six respondents expected a 50-point cut this month, compared to 12 that expected no change.