S&P drops view on Turkey to negative

S&P said it revised its outlook for Turkey to negative from stable and affirmed the B+ foreign-currency and BB- local-currency sovereign ratings.

Over the past month, Turkey has suffered a significant depreciation of its exchange rate. S&P said since Oct. 22, the lira has lost 30% of its value vis-a-vis the dollar, bringing the total weakening so far this year to 45%. The scale of exchange rate movements is similar in magnitude to trends during the August 2018 currency crisis.

“This fall in the exchange rate happened against the front-loaded loosening of monetary policy over the past three months, amid high and rising inflation. In recent years, the Central Bank of the Republic of Turkey (CBRT) has operated under rising political pressure to reduce interest rates. Over the last three months, CBRT has cumulatively reduced the key repo rate by 400 basis points (bps), even as inflation remained significantly above the 5% medium-term target,” S&P said in a press release.

Last month, year-on-year consumer price inflation exceeded 21%, the highest level since October 2018, when official consumer price inflation peaked at 25% after the currency crisis at the time, the agency said.

“In our view, inflation will accelerate in the coming months, and we have revised our annual average inflation forecast for 2022 up to 20.5% from 12% previously. In monthly year-on-year terms, reported inflation could peak at 25%-30% in the coming months,” S&P said.

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