International credit rating agency Fitch Ratings upgraded Turkey’s credit rating by one notch. According to a statement from Fitch, the long-term foreign currency credit rating was raised from “B+” to “BB-“. Following the credit rating increase, the outlook was revised from “positive” to “stable”. In the Foreks News survey, the credit rating was expected to increase to “BB-” with a “positive” outlook.
Positive real interest rates, low current account deficits and a steady and gradual decline in FX-protected deposits are likely to support a sustained improvement in external buffers, Fitch said in its assessment. “We project reserves to increase to USD 158 billion by end-2024 and USD 165 billion by end-2025,” the statement said.”Fitch expressed greater confidence that a sustained tight monetary policy stance (with an easing cycle starting in early 2025), together with projected fiscal consolidation and prudent minimum wage adjustments, will support a significant reduction in inflation and help sustain improved external liquidity buffers, low current account deficits and reduced dollarization.
Explaining that it expects inflation to end 2024 at 43%, the Agency said: “This will lead to an average inflation of 59.5% for the year; average inflation will then fall to 31% in 2025 (21% at the end of 2025), which will be the highest level in the “BB” rating category. Given the still high level of projected inflation, an early easing of monetary policy or an abandonment of the current policy direction, which is not our base case, could rekindle inflationary pressures and hence macro-financial stability and balance of payments risks.”
“Our core view is that the current economic program continues to enjoy support from the political leadership. However, in Fitch’s view, given Turkey’s recent history, the strong belief in low interest rates at the highest political levels, and potential resistance from interest and lobby groups, the risk of policy reversals still exists. “Fitch expects growth to slow to 3.5% in 2024 and remain low at 2.8% in 2025, with the EU’s projected gradual recovery expected to support net exports.
Fitch last upgraded Turkey’s credit rating from “B” to “B+” and the outlook from “stable” to “positive” on March 8, 2024.