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S&P upgrades Turkey's credit rating to B+ with a positive outlook, reflecting confidence in economic policy shifts and inflation control efforts.
By Athena Xu
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Turkey's economic outlook received a boost as S&P Global Ratings upgraded the nation's long-term sovereign credit rating to B+ from B. This adjustment, announced on Friday, comes with a positive outlook and marks a significant acknowledgment of Turkey's recent policy shifts towards more traditional economic strategies. S&P Global's decision reflects a growing confidence in Turkey's economic direction following local elections, highlighting an anticipated improvement in the coordination between monetary, fiscal, and income policies amidst external rebalancing.
The upgrade by S&P Global Ratings is attributed to Turkey's commitment to orthodox economic policies, including monetary and credit tightening, aimed at tackling the country's elevated inflation rates. Turkey's central bank has been at the forefront of these efforts, raising its policy rate by 1,000 basis points to 50% from 40% since the positive outlook revision in November. This aggressive stance is part of a broader strategy to combat inflation, which reached 69.8% year-on-year in April. The central bank's promise to do "whatever it takes" to curb inflation underscores the government's resolve to stabilize the economy.
The upgrade by S&P Global follows similar positive adjustments by other major ratings agencies. Fitch Ratings elevated Turkey's credit rating to B+ earlier this year, while Moody’s improved its outlook to positive, maintaining its B3 ranking. Despite these upgrades, Turkey's credit rating remains below investment grade. However, Turkey's Treasury and Finance Minister Mehmet Simsek has expressed optimism for continued credit rating improvements, buoyed by the positive momentum and policy adjustments post-Fitch's upgrade.
"Following local elections in Turkiye, we believe the coordination between monetary, fiscal, and incomes policy is set to improve, amid external rebalancing... Policymakers are set to persevere with efforts to reduce elevated inflation through a combination of monetary and credit tightening, less generous wage settlements, and gradual fiscal consolidation."
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