Moody’s said Friday that it has upgraded Turkey’s credit rating by two notches on improved governance and progress on inflation, while maintaining the country’s outlook as “positive.”
Turkey’s sovereign credit rating was lifted from B3 to B1, Moody’s said on Friday.
The reasons for the upgrade were listed as improvements in governance, more specifically the decisive and increasingly well-established return to orthodox monetary policies, which are yielding the first visible results in terms of reducing the country’s major macroeconomic imbalances, it said.
While inflation and domestic demand have started to moderate, inflationary pressures are expected to ease significantly in the coming months and into 2025, it added.
In June, the country’s annual inflation rate stood at 71.6 percent — with consumer price hikes easing after hitting a peak of 75.45 percent in May.
A staggering surge in consumer prices and a collapse of the Turkish lira have been deemed responsible for the severe electoral setback inflicted on Erdogan’s AKP party in March’s municipal elections.
For now, Moody’s said the balance of risks remains “skewed to the upside.”
As the effectiveness of monetary policy rises, macroeconomic stability and stronger institutions could allow the country’s strengths — like its diversified and competitive economy — to come to the fore, its report added.
This is especially true if the shift in economic policies were coupled with structural changes that cut the risk of long-lasting inflation shocks, Moody’s said.
As the credibility and effectiveness of monetary policy increases, macroeconomic stability and stronger institutions may allow Türkiye’s underlying credit strengths, such as its diversified and competitive economy and comparatively strong fiscal and debt metrics, to come forward again, it said.
It would be realized especially if the shift in the conduct of macroeconomic policy is accompanied by structural changes that reduce the risk of long-lasting inflation shocks in the future, it added.
Moody’s also raised Türkiye’s local-currency country ceiling to Ba1 from Ba3.
“The three-notch gap between the local-currency ceiling and the sovereign rating reflects the prospect for a further reduction in external imbalances and improving monetary policy effectiveness, as well as a relatively limited government footprint in the economy,” it said.
Türkiye’s foreign-currency ceiling, meanwhile, has also been raised to Ba3 from B2.
“The two-notch gap between the foreign-currency and local-currency ceilings takes into account reduced external vulnerability risks,” it explained.
Moody’s, however, noted that the level of dollarization in Türkiye remains high and confidence in the Turkish lira has not yet been fully restored.