Moody's on Thursday expressed optimism over Türkiye's credit rating as President Recep Tayyip Erdoğan's government embraces a more orthodox economic policy following his triumph in May's elections.
The credit rating agency signaled that the pivot could soon start paying dividends in terms of a stronger credit rating, as long as it sticks with it.
Ankara's credit score, which affects how much the government pays to borrow on capital markets, was in decline before the May vote due to the country's long-running easing trend as the government prioritized growth, exports and investment to tackle the chronic current account deficit and bring stubborn inflation down.
The change of policy direction since the election has seen Erdoğan bring in Treasury and Finance Minister Mehmet Şimşek and Central Bank of the Republic of Türkiye (CBRT) Governor Hafize Gaye Erkan, who have dramatically hiked rates in a bid to tackle the country's long-term inflation issue.
"The change of course is clearly credit positive," Moody's analyst Dietmar Hornung told Reuters. "But there are still significant uncertainties."
The central bank has since June roughly tripled its benchmark policy rate to 25% and pledged that monetary tightening will gradually be strengthened as needed, adding that disinflation will be realized in 2024.
Analysts believe it will need to raise the rate much higher at the next meeting on Sept. 21 because the inflation has shot back up to nearly 60%.
Moody's rates Türkiye a "junk" grade B3 with a "stable outlook." It is not due to formally review its rating until December. But Fitch, which rates the country a notch lower and has a "negative outlook," is due to review its rating on Friday, followed by S&P Global later in the month.
"The moves we have seen since the election are encouraging but the challenges ahead are complex," Hornung said, explaining that cooling inflation expected to rise to 65% this year, and unpicking other "accumulated imbalances," was a challenging task.
"We have a stable outlook on the rating, we don't see any significant downside risks, but it will take time to see the positive effects of the changes."
On the possible timing of any rating move, either a move to a positive outlook or a full upgrade, Hornung said, "It's not a sprint, it's a marathon."
"We need a track record of more orthodox policy and a reduction of the accumulated imbalances."
