S&P Global Ratings could raise Türkiye’s credit rating if inflation falls faster than expected and the central bank keeps building foreign currency reserves, the agency’s lead analyst for the country said in an interview with Anadolu Agency published on Wednesday.
Karen Vartapetov, S&P’s director for sovereign ratings in Central and Eastern Europe and the CIS, said stronger-than-expected disinflation would be a positive factor, alongside adequate reserves and continued confidence among Turkish residents in the lira. A combination of these, with no change in economic policy, would be consistent with a higher rating, according to the agency’s report.
S&P rates Türkiye at BB-/B with a stable outlook, a level affirmed in April and three notches below investment grade. On Oct. 16 the agency published an analysis without a rating decision. Vartapetov said such notes are often released on a Monday rather than a Friday when no rating action is planned, to avoid confusing markets.
Forecasts and the energy shock
S&P expects average inflation of 30.9% this year and 21.7% in 2027. Vartapetov said the government’s single-digit inflation target looked ambitious and that inflation in the low double digits was more realistic.
The agency forecasts growth of 3% this year, 0.4 percentage points below its earlier estimate because of the war in the Middle East, recovering to 3.7% in 2027. Its base case allows for further interest rate cuts, with the policy rate at 35% or higher at the end of the year and more cuts next year, depending on energy prices, especially oil.
The energy price shock from the war is expected to add about 7 percentage points to headline inflation, but second-round effects have so far been relatively limited because domestic demand has weakened, Vartapetov said. Market participants surveyed by the central bank expect year-end inflation of 29.63%.
Fund liquidations and risks
On the liquidation of investment funds that began last month, Vartapetov said the macroeconomic impact had been limited because the problem was confined to capital markets rather than the wider financial system, and money leaving the funds had largely moved into lira bank deposits. The policy response was timely and strong, but completing the liquidations and compensating investors remain risks to watch. Our reports on the fund board’s payouts and central bank governor Karahan’s comments give more background.
The main downside risk, according to S&P, is a balance-of-payments problem that widens the current account deficit and pushes households back towards foreign currency.
A credit rating affects the cost at which Türkiye’s government, banks and companies borrow abroad, and can influence the lira, mortgage rates and investor sentiment, factors that also matter for foreigners holding savings or property in the country. The central bank’s interest rate decision is due on Thursday. For how prices are evolving for residents, see our cost of living in Türkiye guide.
Sources
Photo: Gargarapalvin / CC BY 4.0, via Wikimedia Commons
