Fitch affirmed Turkey’s long-term foreign-currency issuer default rating at ‘BB-’, marking its first positive action on the country since the upgrade in September 2024
Global credit ratings agency Fitch Ratings revised Turkey’s sovereign outlook to “positive” from “stable”, citing a faster-than-expected build-up in foreign exchange reserves and continued policy discipline that has helped reduce the country’s external vulnerabilities.
Fitch affirmed Turkey’s long-term foreign-currency issuer default rating at ‘BB-’, marking its first positive action on the country since the upgrade in September 2024.
Fitch said gross foreign exchange reserves had climbed to $205 billion by mid-January, up sharply from $155 billion at the end of 2024. Net reserves, excluding swaps, also staged a strong recovery, rising to $78 billion from a low of minus $66 billion in early 2024.
The improvement was driven by lower dollarisation, renewed capital inflows and higher gold prices, the agency said. “Turkey’s strengthened reserves and disciplined policies reflect meaningful progress in reducing economic vulnerabilities,” Fitch said in its report.
The upgrade underscores Ankara’s efforts to address long-standing weaknesses, including high inflation, a large current account deficit and heavy reliance on external financing. Stronger reserve buffers have helped ease near-term balance-of-payments risks and improved investor confidence.
However, Fitch cautioned that political risks, elevated inflation and high debt servicing needs continue to weigh on Turkey’s credit profile.
The country’s central bank earlier this month delivered a smaller-than-expected 100-basis-point rate cut, taking the policy rate to 37 per cent.
Inflation still elevated
Turkey’s annual inflation rate eased to 30.89 per cent in December, slightly below market expectations. But price pressures remain uneven across sectors. Food inflation stood at 28.31 per cent, while education and housing costs surged more than 49% year-on-year, underlining the strain on household budgets.
President Recep Tayyip Erdogan defended the government’s “comprehensive reforms” aimed at stabilising prices and restoring macroeconomic balance. At the same time, manufacturers have warned that tight monetary conditions are hurting production and domestic demand.
The government expects inflation to fall to 16 per cent by the end of 2026 and decline further to 9 per cent in 2027. Economists surveyed by Reuters are more cautious, forecasting inflation at around 23 per cent in 2026, with the policy rate easing to 28 per cent by the end of the year.
End of Article
Leave a Reply