International credit rating agency S&P Global Ratings has provided notable messages regarding inflation, interest rates, and the credit rating outlook in its latest assessment of the Turkish economy. The agency stated that for a potential upgrade in Turkey's credit rating, disinflation must progress more strongly than expected, foreign exchange reserves must strengthen, and confidence in the Turkish Lira must be maintained.
Karen Vartapetov, Lead Analyst for Turkey at S&P Global Ratings, expressed that they expect the disinflation process in Turkey to continue, but noted that the single-digit inflation target is ambitious. According to Vartapetov, low double-digit inflation levels appear to be a more realistic path.
In its April assessment, S&P had affirmed Turkey's credit rating at "BB-/B" with a "stable" outlook. The agency did not announce a credit rating decision on October 16, as had been expected, and reported that the current rating and outlook remain valid.
THREE KEY FACTORS FOR A RATING UPGRADE
According to Vartapetov's assessment, a decline in inflation alone will not be sufficient for Turkey to approach a higher credit rating. The Central Bank continuing to increase its international reserves, households continuing to keep their savings in Turkish Lira rather than foreign currency, and the absence of sudden changes in economic policies are also cited as critical conditions.
The agency holds the view that the Central Bank of the Republic of Turkey could continue interest rate cuts until the end of the year. In S&P's base scenario, the policy rate is expected to be at least 35 percent by the end of 2026. Vartapetov emphasized that cuts could continue in 2027, but noted that the forecasts are particularly dependent on the trajectory of oil and energy prices.
S&P stated that the energy price shock caused by the war in the Middle East has pushed Turkey's headline inflation forecast up by approximately 7 points. Conversely, it was stated that the weakening in domestic demand makes it difficult for companies to pass on cost increases to consumer prices, and that there are signs of a slowdown in services inflation.
According to the agency's forecasts, average inflation in Turkey will be 30.9 percent in 2026 and 21.7 percent in 2027. Economic growth is projected to remain at the 3 percent level in 2026 and rise to 3.7 percent in 2027.
The issue of confidence in the Turkish Lira also stood out in the S&P assessment. Vartapetov stated that there is no strong evidence that the liquidation process that began in some investment funds last month has spread widely to financial markets. The flow of money exiting these funds into Turkish Lira-denominated bank deposits was evaluated by the agency as a positive signal for the lira.
In contrast, S&P warned that if the current account deficit grows and households turn back to foreign currency, downward pressure could form on Turkey's credit rating.
News Source: 12punto
