If newly re-established market-friendly policies continue, Moody’s may upgrade Turkey’s credit rating
ALBAWABA – America-based investor services firm Moody’s may upgrade Turkey’s credit rating if market-friendly policies continue, the company said in a report earlier this week, according to Bloomberg.
Turkey President Recep Tayyip Erdogan, since his re-election, has turned away from previously unorthodox policies, which kept interest rates low as inflation soared in the past couple of years. His policies also led to an exodus of investors and traders.
If he sticks to orthodox policies, the country’s credit rating may be lifted, Moody’s said.
“The shift toward more orthodox, rules-based and predictable policy making is credit positive, and comes earlier than we had expected,” the company said.
“The new economic team has committed to bringing down inflation, reducing Turkey’s large external imbalances and ensuring fiscal discipline.”
It also noted that Turkey has “started to gradually correct the direction of monetary and fiscal policy.”
However, even if Turkey is upgraded, it would likely remain in junk territory.
Moody’s rates the government’s debt B3, six steps below investment grade and in line with Angola and Nicaragua. But its outlook is stable.
Since his re-election, Erdogan has installed former Wall Street bankers Mehmet Simsek and Hafize Gaye Erkan as finance minister and central bank governor, respectively.
The two are seeking to bolster Turkey’s credibility among international bond and stock traders by ending years of ultra-loose monetary policy and constant state interventions in financial markets.
The central bank in June raised interest rates for the first time in over two years to rein in inflation running at nearly 50 percent.
Yet, these hikes have been too mild in the view of many economists. When adjusted for inflation, rates remain well below zero and among the lowest worldwide.
Even so, investors have broadly welcomed Turkey’s recent moves, Bloomberg reported.
The average yield on the government’s dollar bonds has fallen to 8.1 percent from over 10.5 percent in late May, according to Bloomberg indexes. And the cost of protecting against a default has dropped significantly, while foreigners have also piled in to Turkish equities.
Moody’s may upgrade Turkey’s credit rating, but warns of Erdogan’s politics
Political considerations may hinder the introduction of more market-friendly politics, Moody’s warned. Erdogan has long championed low borrowing costs and a growth at-all-costs strategy, and has fired three central bank governors for not toeing the line, as reported by Bloomberg.
“The risk of yet another policy shift remains significant,” Moody’s said.
That’s especially the case “if economic growth were to slow more sharply than politically acceptable,” the firm underlined in its report.
Turkey is up for local elections next March.
The agency will “likely change the outlook to negative if the shift toward orthodox policies turned out to be short-lived, as has been the case in early 2021, and furthe
