Too moody? Moody's comes under fire ahead of Turkey rating
Turkey's economic growth beat expectations in the first quarter of 2014 by registering a 4.3 percent year-on-year expansion in its gross domestic product (GDP),
Click here to add Central Bank of Turkey as an alert
Disable alert for Central Bank of Turkey,
Click here to add Justice and Development Party as an alert
Disable alert for Justice and Development Party,
Click here to add Nihat Zeybekçi as an alert
Disable alert for Nihat Zeybekçi,
Click here to add Recep Tayyip Erdo?an as an alert
Disable alert for Recep Tayyip Erdo?an
Turkey's economy minister joined a government-led chorus suggesting that the country is being treated unfairly by international rating agencies on Tuesday, as he targeted Moody's for its possible downgrade of the Turkish sovereign credit rating this week.
The ruling Justice and Development Party (AK Party) government has long criticized rating agencies for being politically motivated, adding that Turkey deserves better grades in the ratings given by agencies. Moody's will announce its decision on Turkey's credit rating on July 8. In April of this year, the agency cut the outlook on Turkey's sovereign rating to negative, citing political turbulence, increased external financing pressure and weaker growth prospects. This had triggered concerns over a possible credit downgrade in the months to follow.
Economy Minister Nihat Zeybekçi told a TV program on Tuesday that he expects Moody's to revise Turkey's credit rating downwards “despite an improvement in Turkey's general economic outlook… This [Moody's downgrade] will be a political decision and they are doing this even though Turkey expects a 4 percent growth this year,” Zeybekçi noted.
Turkey's economic growth beat expectations in the first quarter of 2014 by registering a 4.3 percent year-on-year expansion in its gross domestic product (GDP), causing global lenders and rating agencies to revise their estimates upwards for Turkish growth this year.
In May of last year, Moody's upgraded Turkey's credit rating to BBB-, or investment grade, a move that followed a similar upgrade by Fitch Ratings in November 2012. Most institutional funds need the endorsement of two of the three largest rating agencies before they invest. Turkey is currently classed as investment grade from two agencies, yet the possibility of returning to junk status in Moody's rating is not good for long-term prospects for foreign investors' confidence in the Turkish economy.
Meanwhile, in a separate statement on Tuesday, Zeybekçi called for the Central Bank of Turkey to cut interest rates to the levels expected by markets and warned against an upward revision in year-end inflation targets despite higher than expected July inflation data.
"Market expectations for the cost of financing at the moment are at a lower level than current interest rates because of the political and economic stability in our country," he said in a statement. "It is an absolute necessity…to ease interest rates towards expectations."
Prime Minister Recep Tayyip Erdoğan, keen to maintain growth ahead of a presidential election on Sunday in which he is the front-runner, has repeatedly called for sharp interest rate cuts, arguing high rates cause high inflation. Data on Monday showed consumer prices rose 0.45 percent in July, exceeding a 0.15 percent forecast, for an annual increase of 9.32 percent, near double the official 5 percent target and undermining the central bank's case for further cuts. The bank, which has a year-end inflation forecast of 7.6 percent, trimmed its main one-week repo rate for a third consecutive month in July. Zeybekçi said the July inflation data pointed to inflation coming out above market expectations, but argued against revising targets.
"We see the possibility of our year-end inflation targets being revised upwards as unacceptable and unfair to Turkey and the political and economic stability which it has achieved," he said.
- Al Tayer bucks the US department store trend with Bloomingdale's Kuwait opening
- Gulf Islamic banks set to outperform conventional banks for second year: Moody's
- Jordan secures EU finance for socioeconomic and environmental programs
- Same-day service deliveries in GCC an untapped market: Wing CEO
- Will terror attacks damper Arabs' appetite for European holidays?
- From tweets to public outrage: understanding Turkey's bitterness towards credit rating agencies
- Erdogan just won't let go: Turkey's central bank comes under fire again
- Moody downgrades Russia to 'junk' status
- Moody's outlook for Omani banks remains stable
- Turkey's credit rating downgraded to junk status in coup aftermath