Turkey wins Fitch upgrade after switch to economic orthodoxy

TURKEY’S credit rating was upgraded by Fitch as the government’s return to orthodox economic policy reduces financial stability risks and balance-of-payments pressures.

Fitch moved Turkey’s rating one notch higher to “B+ “from “B” with a positive outlook, according to a statement Friday (Mar 8).

The move “reflects increased confidence in the durability and effectiveness of policies implemented since the pivot in June 2023, including greater-than-expected front-loading of monetary policy tightening, in reducing macroeconomic and external vulnerabilities,” wrote analysts including Erich Arispe Morales.

Since Fitch raised Turkey’s rating outlook to stable from negative on Sep 9, the central bank has further increased its policy rate by 2,000 basis points to 45 per cent and has taken additional tightening steps to tackle inflation running at almost 70 per cent. 

The central bank’s gross foreign currency reserves rose to US$80.5 billion as of Mar 1, up from US$56.5 billion at the end of May, when President Recep Tayyip Erdogan’s reelection signalled the start of the policy reversal. In recent weeks, reserves have come under pressure from increased demand for foreign currency.

Policymakers led by Treasury and Finance Minister Mehmet Simsek have been calling for a ratings upgrade, criticising rating firms for falling behind markets with their assessment of Turkey.

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In January, Turkey’s credit outlook was lifted to positive from stable at Moody’s Ratings, which scores the country at “B3”, six notches below investment grade. 

S&P Global Ratings raised the country’s rating outlook to positive in December, affirming it at “B”. BLOOMBERG