Ankara, (Business News Report)|| Fitch credit rating agency has downgraded the credit rating of Turkey to B+ with negative outlook.
Fitch attributed the downgrade to the inability of Turkey to cope with high inflation.
The agency downgraded Turkey’s rating to “B+” from “BB-” with a negative outlook.
Turkey’s rating is four degrees lower than the investment grade, equal to Egypt and Bahrain’s credit rating.
Fitch said in a statement: “Turkey’s expansionary policy mix (including deeply negative real rates) could entrench inflation at high levels, increase the exposure of public finances to exchange rate depreciation and inflation, and eventually weigh on domestic confidence and reignite pressures on international reserves.”
Turkey’s central bank began cutting interest rates last year under pressure from President Recep Tayyip Erdogan. Most emerging markets headed in the opposite direction in order to protect their currencies from the pressures of rising global prices.
The monetary authorities cut the benchmark interest rate by a total of 500 basis points in four meetings until last December. This increased risk indicators, as credit default swap reached their highest levels in several years.
The Turkish lira lost about half of its value against the dollar, before the government intervened at the end of December to stop the currency’s decline. The government took some measures, including the lira deposit plan that protects savers from rapid bouts of decline. This caused the currency to stabilize, but inflation jumped to 48.7% in January to record the fastest rate of increase in two decades.
It is reported that both Standard & Poor’s and Moody’s place Turkey’s sovereign credit rating at non-investment grade.
In a related context, Turkish Finance Minister Nureddin Nabati said, “Inflation will drop to about 24 percent by the end of the year and will reach 10 percent by May 2023,” while economists expect inflation to be ten percentage points higher.
Nabati added that “the authorities are no longer interfering in the markets to support the lira, which has largely stabilized after the December crisis,” however, he said, “Any rate hike by the Federal Reserve will not affect the emerging market economy.”
Inflation jumped to a two-decade high of 48.7 percent in January, weighed down by President Recep Tayyip Erdogan’s insistence on cutting interest rates and the resulting collapse in the currency, which lost 44 percent of its value last year.
