Turkey’s rating upgraded on tighter monetary policies

Reuters/Cagla Gurdogan

Ratings agency Fitch upgraded Turkey’s long-term foreign currency issuer default rating to “B+” from “B”, driven by greater-than-expected monetary policy tightening aimed at controlling inflation.

“Upgrade reflects increased confidence in the durability and effectiveness of policies implemented since the pivot in June 2023,” Fitch said, revising the country’s outlook to “positive” from “stable.”

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Inflation expectations have eased and external liquidity risks have moderated, Fitch said, which reflects more favourable external financing conditions, higher reserves, lower forex-protected deposits and a narrowing current account deficit.

The central bank has tightened monetary conditions through larger-than-expected interest rate hikes to 45 percent, 3,650 basis points since June 2023, absorbing excess liquidity through reserve requirements, deposit auctions and targeted credit policies.

Inflation expectations have eased, and overall credit growth has slowed, but it remains high for household loans. Forex and forex-protected deposits declined to 56 percent of total deposits at the end of February 2024.

Inflation rose to an annual 67 percent in February. However, Fitch forecasts inflation to average 58 percent in 2024 and finish at 40 percent, above the central bank’s intermediate target of 36 percent.

Turkish finance minister Mehmet Simsek said the rating upgrade resulted from the government’s economy programme and its rule-based and predictable policies.

“Macrofinancial stability will be further strengthened and our credit rating will increase in the second half with disinflation, narrowing current account deficit and budget discipline,” Simsek said on social messaging platform X, formerly Twitter.