Fitch's assessment of Turkey and interest rate cuts

Following Fitch Ratings' upgrade of Turkey's credit rating from "B+" to "BB-" and the revision of its outlook to stable, a webinar titled "Turkey: Progress and Challenges in the Policy Rebalancing Process" was held.

"MAY BEGIN CUTTING POLICY RATE"

Speaking at the event, Morales stated that the reduction in external vulnerabilities and financing needs was influential in the upgrade of Turkey's credit rating, noting that high inflation remains the primary policy challenge for Turkey.

Stating that the Turkish economy has begun to slow down, Morales said, "We believe that the CBRT will maintain a tight stance in monetary policy and may begin cutting the policy rate in the first quarter of next year.

While Turkey's economic program has had upside surprises, there are also risks of a policy reversal and an early easing of the tight monetary policy stance. However, we anticipate that political support for economic policy will continue," he said.

Morales noted that the rebuilding of monetary policy credibility, the continuous reduction in external financing requirements, and the implementation of reforms that will contribute to rebalancing are factors that have a positive impact on the credit rating.

A RAPID DECLINE IN RESERVES COULD NEGATIVELY AFFECT THE CREDIT RATING

Stating that low public debt and improvements in debt composition also played a role in the rating upgrade, Morales expressed that a possible early policy easing, a rapid decline in international reserves, and a deterioration in the composition of reserves are factors that could negatively affect the credit rating.

Morales noted that they expect the Turkish economy to grow by 3.5 percent this year and projected economic growth at 2.8 percent for next year.

Fitch Ratings Director of Banks Ahmet Emre Kılınç also said that the profitability outlook for Turkish banks is weak due to high funding costs, inflationary pressure, and a moderate increase in the cost of risk.

"WE BELIEVE RISKS ARE DECREASING"

Stating that they observed a slight weakening in the asset quality of banks in the first half of the year, Kılınç said, "However, we believe that the banking sector's foreign currency liquidity is still sufficient to cover the majority of short-term external debt. We believe that refinancing risks are decreasing. We can say that investor confidence and the stability of foreign currency deposits continue to be important for the sector."