(Reuters) – Moody’s (NYSE:MCO) on Friday revised Turkey’s outlook to positive from stable, citing the decisive change to the country’s monetary policy.
Since President Tayyip Erdogan won re-election in May, authorities have abandoned the unorthodox low interest rate policy in favour of a sharp policy tightening.
The ratings agency said the policy pivot now improves the prospects for bringing down the country’s currently very high inflation rates to more sustainable levels, the agency said.
“While headline inflation is likely to rise further in the near term, there are signs that inflation dynamics are starting to turn, indicative of monetary policy regaining credibility and effectiveness,” Moody’s said.
Turkey’s annual inflation rate climbed to 64.77% in December, sustaining an upward trend that is expected to continue in coming months after a big rise in the minimum wage.
The agency maintained Turkey’s ratings at “B3”.
The company affirmed the rating on Turkey’s government debt a B3, six notches below investment grade and in line with Angola and Barbados. The return to orthodox monetary policy improves the prospect for reducing the nation’s major macroeconomic imbalances, analysts Kathrin Muehlbronner and Dietmar Hornung wrote in a Friday statement, according to Bloomberg.
Moody’s was quick to laud Turkey’s shift to a mainstream economic policy following last year’s elections, saying that its assessment of the country’s creditworthiness could improve rapidly if Turkey stuck to the new plan. More recently, it warned an outsize minimum-wage increase could undermine the expected slowdown in inflation.
Turkish policymakers led by Finance Minister Mehmet Simsek have been calling for a ratings upgrade, criticizing Moody’s and others for falling behind markets with their assessment of Turkey.
Investors’ perception of risk in Turkish debt — gauged by credit-default swaps — has improved since Simsek took over Turkey’s economy last year and put in place market-friendly policies.
In September, Turkey’s credit outlook was lifted to stable from negative by Fitch Ratings, which scores the country at B, five notches below investment grade. S&P Global Ratings raised the country’s rating outlook to positive in December, affirming sovereign rating at B.
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