Confidence in Turkish assets rises as risk premium falls

Turkey’s risk premium in international markets saw a significant fall as the country returned to orthodox economic policies.

With the change in economic management and pledges for reforms by President Recep Tayyip Erdoğan, the country’s five-year Credit Default Swaps (CDS), which is one of the main indicators of risk premium, declined by 194 basis points from 548 to 354 since the end of October.

Uğraş Ülkü, the head of the emerging markets European research unit at the Institute of International Finance (IIF), said recent monetary simplification and a return to orthodox policies helped improve investors’ confidence in Turkish assets.

“Maintaining a tight monetary and orthodox policies in the coming months will help Turkey restore stronger market confidence,” Ülkü told Anadolu Agency (AA) Wednesday.

Stressing that Turkey’s risk premium could fall further due to the new orthodox policy framework, he said: “It depends on Turkey to reduce imbalances and to restore market confidence.”

Ülkü noted that this would primarily allow Turkish banks to access foreign financing under more favorable conditions to finance robust and less volatile growth in the medium term.

Turkish officials have recently vowed to implement policies that will maximize credibility for investors.

Erdoğan pledged to improve the investment environment with additional reforms.

The president on Monday said he expects an increase in foreign investments in Turkish assets as he vowed to bring promised economic and judicial reforms to parliament after budget talks conclude.