Credit rating agencies upgrade Turkey's rating: Significant changes from Fitch, Moody's, and S&P

Fitch Ratings updated Turkey's credit rating to "BB-", while Moody's raised its rating by two notches from "B3" to "B1". S&P Global Ratings upgraded Turkey's rating from "B" to "B+". These rating upgrades are considered a result of policy shifts in the Turkish economy and improvements in external economic indicators.

NET RESERVES AND CURRENT ACCOUNT DEFICIT

S&P Global Ratings Senior Director Frank Gill emphasized that the increase in net foreign exchange reserves and the rapid narrowing of the current account deficit are significant factors in the Turkish economy. Gill stated that they expect the current account deficit to hover slightly above 1 percent of the gross domestic product (GDP) for this year. The positive impact of falling Brent crude oil prices on the current account deficit was also noted.

INFLATION EXPECTATIONS

Stating that they do not expect inflation in Turkey to fall to single digits until 2027, Gill announced that the inflation forecast for the end of the year is 43 percent, and 23 percent for 2025. He noted that despite high services inflation, food inflation has eased.

CBRT INTEREST RATE POLICY

Gill expressed that the Central Bank of the Republic of Turkey (CBRT) could initiate "cautious easing" by the end of the year, but noted that an early interest rate cut carries risks considering that the inflation rate is above 50 percent. He emphasized that they anticipate the policy rate will remain above inflation at the end of the year.

ECONOMIC GROWTH EXPECTATIONS

Expecting 3.6 percent growth in Turkey this year, Gill projects that growth will slow to 2 percent next year. However, he stated that they do not foresee a recession and that growth will increase again in 2026. He also pointed out that Turkey's strong and diverse economy has the potential to focus on exports.

While the positive developments in the Turkish economy are crowned by rating upgrades from credit rating agencies, how inflation and monetary policies will take shape in the coming period is of great importance. The S&P Global Ratings assessment on November 1 could be a critical turning point in this regard.

News Source: AA