Further upgrades could come following Moody’s decision to lift Türkiye’s credit rating by two notches on Friday, several experts and analysts said.
The agency upgraded Türkiye’s credit rating, citing improved governance, a tighter stance on monetary policy and progress on inflation while maintaining the country’s outlook as “positive.”
The sovereign credit rating was raised by two notches, from “B1” to “B3,” and marked Moody’s first upgrade for Türkiye in more than a decade.
The decision on the improvement of the rating was welcomed both by Turkish officials and many analysts, and comes nearly a year after the shift in monetary policy. It also follows earlier upgrades of other two agencies, Fitch Ratings and S&P.
“Moody’s had fallen significantly behind other credit rating agencies and needed to hurry to close the gap,” said Anadolu Agency (AA) Finance analyst and economist Haluk Bürümcekçi.
Moreover, Bürümcekçi predicted that since all agencies now have a positive outlook on Türkiye, their next decisions would likely involve further one-notch upgrades.
Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, pointed out that a two-notch upgrade is rare.
Ash highlighted that this decision demonstrates how far behind Moody’s was compared to Standard & Poor’s (S&P) and Fitch Ratings regarding Türkiye’s credit rating and indicated a need to catch up. He added that the reforms by Treasury and Finance Minister Mehmet Şimşek have shown their impact.
“The two-notch upgrade and positive outlook suggest that more upgrades are on the way,” he said.
‘Positive expectations’
Professor Erhan Aslanoğlu, vice-rector of Istanbul Topkapı University, also expressed that the decision is significant and positive.
Aslanoğlu mentioned that the two-notch upgrade reflects positive expectations for the future and noted that while the upgrade was not surprising, the two-notch increase was somewhat unexpected.
“But looking at other countries with this rating, it’s clear we expect Türkiye to be in much better positions under normal circumstances. Continuity in this process and strong progress on reforms are essential for moving toward the investment-grade category,” he added.
“Let’s not forget that this upgrade came after about a year. In this year, efforts have been made on monetary policy, exiting the grey list, and fiscal policy, which is a very challenging process,” Aslanoğlu explained.
“Maintaining macroeconomic balance is crucial for the sustainability of these ratings,” he noted.
Backed by President Recep Tayyip Erdoğan and spearheaded by Şimşek, Türkiye has been implementing a tight monetary and fiscal policy since last year to tackle soaring inflation.
“Moody’s raised our credit rating by two notches for the first time!” Şimşek wrote on social media platform X, formerly Twitter shortly after the agency’s upgrade announcement.
“Thanks to the program we are implementing, Moody’s upgraded our country’s credit rating after 11 years and maintained a positive outlook,” he said.
While inflation and domestic demand have started to moderate, inflationary pressures “are expected to ease significantly in the coming months and into 2025,” the ratings agency said.
In June, the country’s annual inflation rate began what is expected to be a sustained fall, dipping more than expected to 71.6% from 75.45% in May.
The agency also noted that Türkiye’s central bank is rapidly enhancing the credibility of monetary policy, which in turn is helping to restore confidence in the Turkish lira.
“Moreover, the tight policy stance is already materially reducing Türkiye’s elevated external vulnerability,” said the statement.
The Central Bank of the Republic of Türkiye (CBRT) hiked its benchmark policy rate by 4,150 basis points since June last year, as authorities reversed a yearslong low-rates policy.
The bank has recently said it would maintain its tight stance until a permanent decline in inflation is achieved.
“The rating increase was influenced by economic balancing, reduced external financing needs, increased international reserves, and the disinflation process,” said Şimşek.
Foreign capital flows
Ismet Demirkol, founder of Pariterium Consultancy cited that the “continuation of the CBRT’s orthodox monetary policy, ongoing fiscal support against external financial vulnerabilities, and positive indicators in the fight against inflation, to make the Turkish lira more valuable contributed to the two-notch upgrade.”
Demirkol predicted that Moody’s decision would help reduce Türkiye’s five-year credit default swap (CDS) premium and noted that S&P and Fitch Ratings are also expected to increase the country’s credit rating by two notches.
He emphasized that this decision could facilitate foreign capital inflows to Türkiye, especially in 2025, and might significantly contribute to making direct foreign investments more sustainable.
Commenting on the upgrade, Vice President Cevdet Yılmaz noted their expectations of “increased credit rating to facilitate access to more qualified financing for investment, employment, production and exports.”
“In an environment where the world is growing below historical averages, regional tensions are rising, and the wounds of the biggest earthquake disaster in our history are being healed, we continue to implement the Medium Term Program (MTP) we announced last year with determination,” Yılmaz said in a post on X.
In addition, he reiterated the goal of reducing inflation while citing that the central bank reserves are at “historically high levels,” and that there are “improvements in risk indicators, current account deficit and a budget deficit that exceed our MTP targets.”
Trade Minister Ömer Bolat, evaluating the Moody’s decision said that increasing credit scores in addition to other positive developments such as “high growth performance, decreasing unemployment rate, rising foreign exchange reserves, increasing exports, decreasing foreign trade deficit and decreasing current account deficit, rapidly falling CDS premium are promising and confirm that we are on the right track.”
Moody’s revised Türkiye’s outlook to positive from stable earlier in January and affirmed the “B3” credit rating at the time.
In March, Fitch Ratings also upgraded Türkiye’s credit rating from “B” to “B+” and its outlook from stable to positive, while S&P has also raised its grade to “B+” from “B” and assigned a positive outlook.
