Global evaluation agency Fitch Ratings promoted its expectation on Turkey’s foreign currency on Thursday, describing that the country is making “firm progress” in assuring a soft landing for an overheated economy and constricting the current account deficit (CAD).
The ratings agency updated the position of the economy from “static” to “confident” in its report, bumping up its credit rating from BBB- to BB+, just a step below investment grade. In the meantime, the lira ascertained a drop to a new one-month low, although two-year Turkish bond yields arose and stocks fell for a fifth consecutive day.
Fitch’s upgrade will be welcome in Ankara, where a downgrade by S&P of the country’s BB sovereign credit rating from positive to static led an irate Prime Minister Recep Tayyip Erdoğan to advise that the country might set up a credit agency of its own. S&P told the downgrade in creditworthiness was due to Turkey’s high debt and aggravating terms of trade, which it anticipated would weaken as demand in Europe slowed.
The continuing impulse of exports in recent months, all the same, saw Moody’s bump Turkey’s bond in late June. Moody’s awarded the country a rating one notch below investment grade and gave a positive outlook for the country, indicating that a additional upgrade is probably in the mid-term.
The Thursday upgrade came as Fitch marked in a affirmation to the press a so far successful soft landing for the Turkish economy and “further progress in navigating a path back towards its potentiality growth rate.” The agency’s affirmation cited inflation falling at its target rate and the CAD narrowing to a more sustainable level.
The Fitch appraisal concluded that the Turkish economy overheated in 2011, and marked a CAD rate which arrive at 10 percent of gross domestic product (GDP) in 2011. Year-end inflation also hit double digits, “leaving it with a challenge of rebalancing, and vulnerable to a sharp correction.”
