Turkey’s ” BBB- ” sovereign rating was not affected by the political developments recently taking place in the country, global credit rating agency Fitch Ratings..
Turkey’s “BBB-” sovereign rating was not affected by the political developments recently taking place in the country, global credit rating agency Fitch Ratings..
Turkey’s “BBB-” sovereign rating was not affected by the political developments recently taking place in the country, global credit rating agency Fitch Ratings announced on Tuesday.
The market reaction to the “political crisis” in Turkey highlights the capacity for domestic shocks to damage investor perceptions of sovereign creditworthiness, Fitch published in its “Turkey Political Crisis Highlights Persistent Challenges” report.
Touching on the recent political developments in Turkey, Fitch said it has raised investors’ premium for holding Turkish financial assets, refocused attention on Turkey’s large current account deficit and pushed the Turkish lira down to record lows against the US dollar.
The London-based credit ratings agency also said the current “crisis” remains very “fluid” and hasn’t yet had a materially adverse impact on the macroeconomic outlook.
Referring to the local and presidential elections in Turkey planned for later this year, Fitch said further political and social unrest is possible ahead of both elections.
“If the corruption scandal drags on, it could weaken the government and undermine its ability to take timely policy measures that would maintain economic stability,” its stressed.
A statement released by Fitch added, “Reliance on net capital inflows and consequent vulnerability to investor sentiment are well-established key ratings weaknesses. As we said when we affirmed the rating in October, they are mitigated by declining government debt ratios, a robust banking system, a relatively deep domestic capital market and a dynamic private sector.”
In addition, Fitch Ratings mentioned that the Turkish Lira fell over 7 percent against the US dollar since mid December and said, “It is likely the lira would have fallen further were it not for central bank intervention. The bank has pledged to spend USD 6 billion to end-January to support the Lira, which could reduce gross foreign exchange reserves to around USD 107 billion.”
Furthermore, Fitch said that market perceptions of political risk were not showing signs of abating and added that in 2014 Turkey’s central bank would remain under pressure to raise interest rates, even while authorities aim to maintain growth at 4 percent.
Also touching on Turkey’s economic growth, the credit rating agency said they forecast Turkey’s growth in 2014 at 3.2 percent.
“The Turkish central bank’s foreign exchange reserves market intervention cannot continue indefinitely. Currency weakness poses a threat to Turkish corporates. As we said in October, we think the authorities will adjust policy settings to avoid a more disruptive economic shock,” it added.