Risks aside, Turkey boasts a large, diversified, resilient economy with a solid banking sector, an executive at Moody’s Investors Service, a sister company of the global ratings agency, said Monday.
"They (Turkish banks) have had pretty good results. They are solid," Kathrin Muehlbronner, senior vice president within Moody’s Investors Service Sovereign Risk Group, told Anadolu Agency (AA), citing "stabilizing factors."
"Exporters are benefiting clearly very much from the (Turkish lira’s) depreciation," she said, praising the country’s "large diversified resilient economy."
She noted that Turkey may benefit from supply chain shifts in the wake of the coronavirus pandemic.
"Turkey can benefit massively from a nearshoring of production by European companies and (from its) Customs Union with the EU."
She said prospects for Turkish economic growth are optimistic, adding: "Exports are doing well. Lira depreciation helps. There are clear incentives such as credit stimulus for exporters and investments."
Muehlbronner welcomed steps by the Turkish government to shield the poorest households from inflation.
Propelled by rising energy and commodity prices, Turkey’s annual inflation runs at a 20-year high of nearly 70% as of April, according to official data.
Consumer prices have been increasing despite tax cuts on basic goods and government subsidies for utility bills to ease the burden on household budgets.
After it took a hit from the pandemic like the rest of the world, Muehlbronner said she expects the Turkish tourism sector to have a good season.
She underlined that the Turkish economy may grow faster than Moody’s forecast of 3% this year.
On inflation, Muehlbronner said the upward trend stemmed from the weaker lira, especially through end-2021 and elevated commodity prices.
"We think inflation will drop kind of mechanically at the end of the year because of a base effect," Muehlbronner noted.
Listing risks to the Turkish economy, she said high inflation, currency pressure and loose monetary policy create downside risks for the country.
The Central Bank of the Republic of Turkey (CBRT) is expected to hold its key policy rate unchanged at 14% for the fifth straight month on Thursday, according to surveys.
Inflation has surged since last autumn as the lira weakened after the central bank in September embarked on a 500-basis point-easing cycle.
The government’s foreign exchange-protected lira deposits tool, she said, "was certainly a good step to stabilize the currency. And it has reduced dollarization of deposits by around 10 percentage points."
Muehlbronner was referring to the scheme that the government unveiled in December to boost lira deposits by protecting them against exchange rate volatility.
Ankara has called on individuals and companies to convert their foreign exchange savings to lira to support the currency.
"So, we’re back to the levels of share of deposits and dollars that we had before the latest currency crisis. So that’s certainly a positive step," Muehlbronner added.