ANKARA: Standard and Poor's (S and P) announced that it has raised Trkiye's long-term sovereign credit rating to BB- from B+, maintaining a stable outlook. The decision reflects the Central Bank of the Republic of Turkiye's (CBRT's) effective monetary policy, which has contributed to stabilizing the lira, reducing inflation, rebuilding reserves, and decreasing dependency on foreign currency within the financial system. According to Anadolu Agency, the rating upgrade is partly due to a narrowing savings gap between Trkiye and the rest of the world. This is evidenced by an approximately 4 percentage point decline in the current account deficit as a percentage of GDP since 2022. The stable outlook indicates balanced risks over the next 12 months, as the authorities aim to reduce inflation, manage wage expectations, and rebalance the economy. S and P emphasized that the stable outlook is contingent on the current economic team's continued commitment to a tight monetary policy. This comes despite potential ris ks associated with the government's medium-term program. The agency cautioned that the ratings could be downgraded if financial stability pressures or public finance issues intensify. Conversely, S and P noted the possibility of further rating upgrades if Trkiye makes significant progress in reducing inflation to single-digit levels and restoring confidence in the lira and domestic capital markets. Indicators of such progress would include further de-dollarization of foreign currency deposits in banks and increased liquidity and depth in domestic capital markets, especially for foreign exchange operations. The agency projects a decrease in real GDP growth, forecasting an ease to 2.3% in 2025 from 3.1% this year, influenced by tighter credit conditions and reduced labor demand. Nonetheless, this is expected to be partially offset by stronger exports of goods and services. A gradual economic recovery is anticipated to begin in 2026.
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