Fitch announces post-election inflation expectations for Turkey: 'We were proven wrong'

According to a report by Bloomberg HT, Morales explained the reasons behind the credit rating upgrade and answered questions during an online meeting held after Fitch Ratings upgraded Turkey's credit rating from 'B' to 'B+' and its outlook from "stable" to "positive" last week.

"WE WERE PROVEN WRONG"

Stating that the policy shift has provided more monetary tightening than they had anticipated during the period last September when they affirmed Turkey's credit rating at 'B' and revised the outlook from "negative" to "stable," Morales said, "At that time, we thought interest rates would remain at the 35 percent level, believing that the Central Bank of the Republic of Turkey's (TCMB) room for maneuver would be limited due to the proximity of the elections.

However, we were clearly proven wrong, and the TCMB became more ambitious with a tightening that reached a 45 percent interest rate at the beginning of the year, and general credit conditions in the economy tightened," he said.

Morales underscored that monetary tightening has gone further than they expected, but noted that inflationary pressures remain strong.

"PRIMARY GOAL IS TO REDUCE INFLATION"

Noting that they believe inflation will remain a significant policy challenge in Turkey in the short term, Morales said, "We expect policy tightening consistent with reducing inflation. The primary goal of the authorities in Turkey is to reduce inflation."

Recalling that an improvement in Turkey's international reserve levels has been observed with the policy shift and that the size of foreign exchange-protected deposits has decreased significantly, Morales assessed, "We expect the improvement in international reserves to continue, with policy remaining consistent with achieving a sustainable decline in inflation, a narrowing in the current account deficit, and some portfolio inflows."

"A PROCESS THAT REQUIRES TIME"

Stating that foreign portfolio inflows could contribute to the goal of Turkish lira appreciation and reserve accumulation, Morales indicated that they expect the current account deficit to decline from the 37.5 billion dollar level in January to 31 billion dollars this year and 28 billion dollars in 2025.

Pointing out that the change in economic policies has also increased Turkey's access to international capital, Morales noted the following:

"Looking ahead, given the high level of external financing needs, access to external financing will continue to be a key factor in terms of ratings.

It is a process that requires time for Turkey to regain an investment-grade rating. For this, we need to see some vulnerabilities addressed and the success of the policy, where the main issue here is again inflation."