Fitch: Further downgrade to junk for the Turkish economy

Ratings agency Fitch Ratings further downgraded Turkey’s public debt rating to “junk” level, stressing that the government’s policies are contributing to “spiking inflation” and discouraging capital inflows.

The rating agency lowered Turkey’s rating to B from B+, taking it five notches below investment grade. The outlook for Turkey is negative, Fitch said.

“Guided by policy considerations, the central bank is keeping its key interest rate at 14% from December 2021, despite a rapid rise in inflation, the impact of the war in Ukraine on commodity markets and monetary policy tightening in most advanced economies” , Fitch wrote.

Turkey’s Central Bank kept its policy rate unchanged this year, even as annual inflation jumped to 78.6% in June. Consequently, the country has the lowest real yield in the world at minus 64.6%.

Instead of raising interest rates to deal with soaring prices and a weakening currency, the authorities have put in place a number of unorthodox measures this year. The banking regulator banned cheaper pounds-denominated loans to companies with strong foreign currency reserves, in the latest bid to support the currency and reduce inflationary pressure.

“The government’s focus on maintaining high growth is fueling foreign exchange demand, depreciation pressures on the pound, declining international reserves and rising inflation, and discouraging capital inflows to finance the higher current account deficit,” she added. Fitch.

The Turkish lira has lost more than 20% of its value against the dollar this year.

Turkey lost its investment grade rating from Fitch in January 2017 and has been further downgraded four times since then. It also has junk ratings from Moody’s and Standard & Poor’s, B2 and B+, respectively