UPDATE - Moody's upgrades Türkiye's ratings to B1 from B3, maintains positive outlook

ADDS INFORMATION

By Ovunc Kutlu

ISTANBUL (AA) - Moody's announced Friday it upgraded Türkiye's long-term foreign- and domestic-currency issuer and foreign-currency senior unsecured ratings to B1 from B3.

The global rating agency said the outlook remains positive.

"Concurrently, the foreign-currency backed senior unsecured rating of Hazine Mustesarligi Varlik Kiralama A.S. has also been upgraded to B1 from B3," with a stable outlook, it said in a statement.

The reasons for the upgrade were listed as improvements in governance, more specifically the decisive and increasingly well-established return to orthodox monetary policies, which are yielding the first visible results in terms of reducing the country's major macroeconomic imbalances, it said.

While inflation and domestic demand have started to moderate, inflationary pressures are expected to ease significantly in the coming months and into 2025, it added.

The Central Bank of Türkiye is rapidly enhancing the credibility of monetary policy, which in turn is helping to restore confidence in the Turkish lira, said the agency.

"Moreover, the tight policy stance is already materially reducing Turkiye's elevated external vulnerability," said the statement.

"The positive outlook reflects a balance of risks skewed to the upside," according to the rating agency.

As the credibility and effectiveness of monetary policy increases, macroeconomic stability and stronger institutions may allow Türkiye's underlying credit strengths, such as its diversified and competitive economy and comparatively strong fiscal and debt metrics, to come forward again, it said.

It would be realized especially if the shift in the conduct of macroeconomic policy is accompanied by structural changes that reduce the risk of long-lasting inflation shocks in the future, it added.

Moody's also raised Türkiye's local-currency country ceiling to Ba1 from Ba3.

"The three-notch gap between the local-currency ceiling and the sovereign rating reflects the prospect for a further reduction in external imbalances and improving monetary policy effectiveness, as well as a relatively limited government footprint in the economy," it said.

Türkiye's foreign-currency ceiling, meanwhile, has also been raised to Ba3 from B2.

"The two-notch gap between the foreign-currency and local-currency ceilings takes into account reduced external vulnerability risks," it explained.

Moody's, however, noted that the level of dollarization in Türkiye remains high and confidence in the Turkish lira has not yet been fully restored.

On the other hand, the central bank's sharp monetary tightening has restored confidence in and attractiveness of the Turkish lira, which can be seen in the increase in lira deposits, as deposit rates averaging close to 60% currently, it said.

The agency expects consumer inflation to sharply decrease to below 45% by December, helped by the slowdown in domestic demand that is currently underway and with appreciation in the real exchange rate.