The rating agency has cut Ankara’s credit rating deeper into junk territory
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International rating agency Fitch has slashed Turkey’s debt rating to B from B+, citing government policies that have reportedly contributed to “spiraling inflation” and discouraging capital inflows.
The agency also forecast annual inflation to average 71.4% in 2022, the highest of any country rated by Fitch, adding that its trajectory remains highly uncertain.
The agency expects average inflation to slow to 57% in 2023 amid overly accommodative policies until parliamentary and presidential elections that are scheduled for June 2023.
“Guided by political considerations, the central bank has maintained its policy rate at 14% since December 2021, despite rapidly rising inflation, the impact of the war in Ukraine on commodity markets and tightening monetary policy in most advanced economies,” Fitch said on Friday.
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Turkey hopes to rein in runaway inflation
The Central Bank of Turkey has kept its policy rate unchanged this year even as annual inflation surged to 78.6% in June. As a consequence, the country has the lowest real yield in the world at minus 64.6%.
Turkey’s national currency, the lira, lost 44% of its value against the US dollar in 2022, mostly due to a series of rate cuts from the regulator. It is down a further 23% so far this year.
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