S&P Global Ratings downgraded Turkey’s sovereign credit rating deeper into junk territory in its latest review, citing concerns over the country’s ultra-loose monetary policy, Bloomberg reported on Friday.
The rating agency has downgraded Turkey from B+ to B, putting it on a par with Mongolia and Egypt. The outlook on the rating is stable, it said.
“Ahead of 2023 parliamentary and presidential elections, Turkish policymakers are prioritizing growth over financial and monetary stability,” S&P said in its statement published on Friday night after markets closed in New York. “In our view, highly accommodative fiscal and monetary settings risk further undermining confidence in the lira as a store of value, against a backdrop of tightening global financing conditions.”
The downgrade comes about a year after Turkey began cutting interest rates despite rampant inflation, a policy championed by President Recep Tayyip Erdoğan. The central bank’s benchmark one-week repo rate is now 12 percent, despite annual price increases exceeding 80 percent. Easy access to credit also took its toll on the Turkish lira, which lost more than half its value against the US dollar last year. This is the largest decline among the 31 major currencies tracked by Bloomberg.
“Renewed currency depreciation would have negative implications for Turkiye’s financial stability and public finances, given rising dollarization of public debt, as well as substantial Treasury guarantees,” S&P said.
Turkey’s credit rating has been downgraded by all three major agencies in the last three months. Moody’s Investors Service lowered the country’s rating in August, citing balance of payments risks, while Fitch Ratings downgraded Turkey’s sovereign debt in July because of “inflation.”