Moody’s upgrades Turkey’s ratings to B1 on tight monetary policy

Image credit: Westend61/ Getty Images

Ratings agency Moody’s upgraded Turkey’s ratings to “B1” from “B3” on Friday, citing improvements in governance and a tighter stance on monetary policy.

Backed by President Tayyip Erdogan and spearheaded by Finance Minister Mehmet Simsek, Turkey has been implementing a tight monetary and fiscal policy since last year to tackle soaring inflation. Annual inflation dipped to below 72 per cent last month from above 75 per cent in May, which is seen as the peak.

Turkey’s central bank has raised its main rate to 50% from 8.5% since Simsek was appointed last year.

The country’s central bank has recently said it will maintain its tight monetary policy stance until inflation declines permanently. In June, the central bank reiterated that disinflation would take hold in the second half of the year.

Last month, the international crime watchdog, Financial Action Task Force (FATF), removed Turkey from its “grey list” of countries that require special scrutiny in a boost to the country’s economic turnaround plan.

Moody’s is the first credit ratings agency to announce new ratings for Turkey following the FATF decision.

Moody’s said the country’s lower current-account deficit and improvement in the central bank’s financial position have materially reduced its external vulnerability.

“Earlier concerns over rising risks of a full-blown balance of payments crisis – which had triggered successive downgrades to the B3 rating level – have for now dissipated,” the agency added in a statement.

The agency also maintained its “positive” outlook on Turkey, expecting authorities to maintain its tight economic policy stance for longer.

Read: Türkiye’s central bank raises year-end inflation forecast to 38%