Fitch lifts Turkey's credit outlook from 'negative' to 'stable'

International credit rating agency Fitch Ratings has affirmed Turkey's credit rating at "B", shifting the outlook from "negative" to "stable" after two years. This strategic move comes as a reflection of a transition towards a more traditional and consistent policy mix, that has been successful in reducing short-term macro-financial stability risks and alleviating pressures on the balance of payments.

According to the statement released by the agency, Turkey's long-term foreign currency credit rating has been reaffirmed at "B". The focal point of this announcement, however, is the modification of the credit outlook from "negative" to "stable", showcasing a nuanced shift in the economic predictions surrounding the nation. This alteration in perspective is designed to mirror the policies that have been influential in diminishing macro-financial stability risks in the short-term and lessening strains on the payments balance.

Turkish Central Bank has been at the center of this policy transformation, raising the policy interest rate by 1650 basis points to 25% since June. The statement also reminded stakeholders of this significant uptick, further projecting an anticipated rise in the policy rate to 35% by the end of 2023. Moreover, it is forecasted that this level will be maintained throughout 2024, despite the high levels of uncertainty surrounding the pace and duration of the monetary tightening in the future.

Another notable highlight of the statement was the evident recovery in the gross international reserves since mid-May. The report underscores a projection that anticipates the reserves reaching a substantial 115 billion dollars by the end of 2023 and maintaining relative stability in 2024.

The statement did not shy away from presenting a detailed outlook. According to the data shared, the average inflation rate is forecasted to be 51.9% in 2023, with the end-of-year inflation expected to settle at around 65%.

Fitch had last confirmed Turkey's credit rating as "BB-" with a "stable" outlook on August 13, 2021. However, the credit outlook underwent a revision to "negative" on December 2, 2021. This recent adjustment to a "stable" outlook comes after almost two years, signaling a potential period of economic stability and reduced volatility for Turkey, as it adapts to a more conventional and consistent policy framework aimed at fostering economic resilience and growth.