Fitch, a ratings agency, downgraded Turkey’s debt rating from “B+” to “B” in Istanbul, citing rising inflation and a range of economic worries, including a growing current account deficit and interventionist policies.
A currency crisis at the end of last year and the lira’s continued decline were the main causes of Turkey’s inflation spike, which reached a 24-year high of 78.62 percent in June. Price increases have also been fueled by the economic fallout from Russia’s invasion of Ukraine in import-dependent Turkey, particularly as a result of rising energy and commodity costs.
The agency confirmed in a statement that the outlook for its rating is “negative,” and it added that it anticipates Turkey’s consumption to slow due to rising inflation, a weaker currency, and declining domestic confidence.
The highest annual inflation rate among the sovereigns the agency rates will be 71.4 percent this year, according to Fitch, who also noted that its trajectory is still very uncertain.
According to Fitch, excessively accommodating policies up until parliamentary and presidential elections scheduled for no later than June 2023 will cause average inflation to slow to 57 percent in 2023.
Last year, a series of rate cuts from the central bank contributed significantly to the 44 percent decline in the value of the lira against the dollar. The value of the currency has fallen by another 23% so far this year.
The government has taken steps to stem the lira’s decline. A recent move by the BDDK banking watchdog to restrict lira lending to foreign currency-rich companies helped it rally briefly last week as corporates sold hard currencies. Referring to the move, Fitch said “policies are becoming increasingly interventionist as well as unpredictable.”
