Fitch predicts 60 TL for the dollar: They gave a date! Inflation forecast exceeds MTP

International credit rating agency Fitch Ratings reported in its latest assessment of the Turkish economy that the increase in foreign exchange reserves and the implementation of tight monetary policy have reduced short-term external risks.

However, the agency emphasized that high inflation, policy-related risks, and the economy's sensitivity to internal and external shocks persist. Fitch stated that these factors continue to exert pressure on Turkey's "BB-" credit rating and "Stable" outlook.

According to Fitch's projections, the dollar/TL exchange rate is expected to rise to 51 by the end of 2026 and to 60 by the end of 2027. The agency anticipates that the gradual depreciation of the Turkish lira will continue in order to reduce the pressure of the appreciation in the real effective exchange rate on exports.

On the inflation front, while the expectation of a decline remains, the forecasts have stayed above the Medium-Term Program (MTP). Fitch estimates that inflation will be 30.5 percent at the end of 2026 and 23.5 percent at the end of 2027. In the new MTP, these rates were announced as 28.4 percent and 21 percent, respectively.

RESERVES AND CURRENT ACCOUNT EXPECTATIONS

Fitch's assessment reported that Turkey's gross foreign exchange reserves have increased by 25 billion dollars since the end of March, reaching 176 billion dollars as of September 23. It was stated that this level is sufficient to cover approximately 4.5 months of current external payments.

However, the agency pointed out that the reserves remain below the 210 billion dollar level seen before the Iran war and the 5.2-month median level in countries with a "BB" rating. It was noted that net reserves excluding swaps have risen from 16 billion dollars at the end of March to 45 billion dollars.

Fitch expects the current account deficit to GDP ratio to rise from 1.9 percent in 2025 to approximately 3 percent in 2026. According to the agency, an increase of approximately 20 dollars in average annual oil prices could increase the current account deficit by more than 1 percent of GDP.

While oil prices are expected to decline from an average of 87 dollars to 70 dollars in 2027, the current account deficit is estimated to remain generally flat due to increasing import demand.

DOLLARIZATION AND GROWTH RISKS

Fitch stated that recent steps toward the liquidation of approximately 18 billion dollars in investment funds have revealed some regulatory shortcomings from the past. However, it was expressed that the timely steps taken by policymakers have limited the pressure on the stock market and that these developments are not expected to have a significant impact on the country's credit rating.

The agency reported that the majority of the funds exiting money market funds have shifted to Turkish lira deposits, and that deposit dollarization has remained generally stable at around 39 percent since 2024.

Fitch, which views the risk of dollarization rising again before the presidential elections expected at the end of 2027 or the beginning of 2028 as "moderately high," pointed out that choices in economic policy as the election period approaches could complicate the rebalancing process.

On the growth side, Fitch expects the Turkish economy to grow by 2.8 percent in 2026, and for the growth rate to rise to 4.3 percent in 2027. The agency stated that although it foresees a moderate easing in economic policy next year, it does not expect a return to overly heterodox policies.

News Source: 12punto