New York July 9 2022: Fitch Ratings downgraded Turkey’s sovereign debt rating further into junk, saying the government’s policies are contributing to “spiralling inflation” and discouraging capital inflows.
The rating company lowered Turkey’s score to B from B+, taking it five notches below investment grade. The outlook for Turkey is negative, Fitch said.
“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 wrote.
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%.
Instead of hiking rates to tackle soaring prices and the weakening currency, the authorities have put several unorthodox measures in place this year. The banking regulator banned cheaper lira loans to foreign-currency-rich companies in the latest effort to support the currency and ease inflation pressure.
“The government’s focus on maintaining high growth feeds FX demand, depreciation pressures on the lira, decline in international reserves and spiralling inflation, and discourages capital inflows to fund the higher current account deficit,” Fitch added.
The Turkish lira has lost more than 20% of its value against the dollar this year.
Turkey lost its investment grade status from Fitch in January 2017, and has been further downgraded four times since then. It has junk ratings from Moody’s and Standard & Poor’s as well, B2 and B+, respectively