International credit rating agency Fitch Ratings has once again published its report on Turkey’s credit rating.The long-term foreign currency credit rating was raised from “B+” to “BB-“. Following the credit rating upgrade, the outlook was revised from “positive” to “stable”.
‘Reserves will increase’
Fitch said in its assessment that positive real interest rates, low current account deficits and a steady and gradual decline in foreign exchange-protected deposits are likely to support the durability of the improvement in external buffers. “We expect reserves to rise to USD 158 billion by the end of 2024 and USD 165 billion by the end of 2025,” the statement said.
Emphasis on tight monetary policy
Fitch expressed greater confidence that maintaining the 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 disinflation and help sustain improved external liquidity buffers, lower current account deficits and reduced dollarization.
Inflation forecast
The agency, which announced that it expects inflation to end 2024 at 43 percent, noted in its report: “This would lead to an average inflation of 59.5 percent for the year; average inflation would then fall to 31 percent in 2025 (21 percent by the end of 2025), which would be the highest level in the “BB” rating category. Given the still high projected level of inflation, premature easing of monetary policy or abandoning the current policy direction, which is not our base case, could revive inflationary pressures and thus macro-financial stability and balance of payments risks.”
‘Policy reversal risk still exists’
“Our fundamental view is that the current economic program continues to receive support from the political leadership. However, in Fitch’s view, the risk of policy reversals remains, given Turkey’s recent history, the strong belief in low interest rates at the highest political levels, and the potential resistance from interest groups and lobby groups,” the statement said.
Fitch sees growth slowing to 3.5% in 2024 and remaining at 2.8% next year.
Fitch last upgraded Turkey’s credit rating from “B” to “B+” and its outlook from “stable” to “positive” on March 8.
Source: www.dunya.com
