Turkey Says Will Address Market Concerns

Turkey defended its economic policies on Saturday, a day after Moody’s placed the country’s rating on review for a downgrade and Fitch said it was monitoring its banks.

Turkey has tightened and simplified its monetary policy and introduced macro prudential measures, Deputy Prime Minister Mehmet Simsek said on Twitter. Work was in progress to further strengthen the policy mix, tightening fiscal policy via spending cuts, he added, Reuters reported.

The Turkish currency has tumbled some 20% this year on deepening concern about President Tayyip Erdogan’s grip on monetary policy after presidential elections this month.

Moody’s, which had already downgraded the country’s rating in March, announced on Friday that it would review Turkey’s Ba2 rating for a downgrade, citing concern over economic management and erosion of investor confidence.

“The negative shift in investor sentiment is a significant challenge for a country that is deeply dependent on net capital inflows,” Moody’s said, adding that the authorities were unable to fully address country’s structural economic problems.

Having demoted Turkey to a junk rating in March, Moody’s has indicated that it expects Turkey’s investment environment to continue to deteriorate by considering downgrading it once again.

“Today’s decision to place Turkey’s Ba2 rating on review for downgrade is driven by Moody’s expectation that the recent erosion in investor confidence in Turkey will continue if not addressed through credible policy actions following the June elections, leading to a sustained increase in the probability and proximity of severe balance of payments constraints,” the agency said.

Separately, Fitch said it would place 25 Turkish banks’ ratings on watch negative, including listed lenders such as Yapi Kredi Bank, Akbank and Garanti Bankasi.

“The RWNs (Rating Watch Negative) placed on all Turkish banks’ VRs (Viability Rating) reflect risks to their performance, asset quality, capitalization and, in most cases, liquidity and funding profiles following a recent period of increased market volatility,” Fitch said in a statement.

The central bank hiked the interest rate by 300 basis points to 16.50% in an emergency meeting last week to prop up the lira, which has hit a record low of 4.929 against dollar.