(Bloomberg) -- Moody’s Ratings raised Turkey’s credit rating for the first time in more than a decade, marking the latest milestone in the country’s efforts to return to orthodox economic policies.
The rating was upgraded two notches to B1, from B3, with a positive outlook. Turkey still remains four notches below investment grade, on par with Jordan and Bangladesh. The move follows upgrades by S&P Global Ratings and Fitch Ratings, as Turkey’s return to conventional policies has led to a turnaround in inflation and a rapid increase in the central bank’s foreign exchange reserves.
“The key driver of the upgrade to B1 is improvements in governance, more specifically the decisive and increasingly well-established return to orthodox monetary policy,” Moody’s said. “This is yielding first visible results in terms of reducing Turkiye’s major macroeconomic imbalances.”
Turkey experienced some of the world’s fastest price increases in recent years as President Recep Tayyip Erdogan moved away from traditional economic policies, favoring growth through cheap loans, minimum wage hikes and loose public financing. After last year’s elections, an economic team led by Finance Minister Mehmet Simsek sought to restore stability by raising the central bank’s benchmark rate to 50% from 8.5% and enforcing stricter fiscal policies.
“Boom — great news for Turkey. Rare you get double-notch upgrades, but shows how behind the curve Moody’s were and they needed to catch up with Fitch and S&P,” said Tim Ash, an emerging markets strategist at RBC BlueBay Asset Management. “Shows impact of Simsek reforms.”
More: Turkish Central Bank Head Wants to Banish Talk of Early Rate Cut
Moody’s had revised Turkey’s credit outlook to positive from stable in January, citing a “decisive change” in economic policy undertaken by authorities. S&P raised the country’s rating one notch to B+, from B, with a positive outlook. Fitch also moved the country’s rating one notch higher to B+, from B, with a positive outlook in March.
“Thanks to the program we implemented, Moody’s, which raised our country’s credit rating after 11 years, maintained the outlook as positive,” Simsek said on X, adding that the positive outlook points to more potential rating increases.
Moody’s said it expects consumer price inflation to drop sharply to below 45% by December, helped by a slowdown in domestic demand that is under way and real exchange rate appreciation. No repetition of the mid-year minimum wage increases that happened in July 2023 and 2022 will also likely support disinflation going forward.
Moody’s sees inflation slowing to around 30% in 2025, while it expects the current account deficit to be 2.4% of GDP this year and below 2% of GDP in 2025, down from a recent high of 5% in 2022.
Moody’s said that while external vulnerabilities and political risks may have declined, they remain key rating constraints.
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