Moody's upgrades Turkey's outlook to 'positive'

The upgrade primarily stems from a decisive shift in Turkey's economic policy, particularly a return to orthodox monetary policy. "This change, if sustained, significantly enhances the likelihood of correcting Turkey's major macroeconomic imbalances," the agency stated.

Despite expectations of a short-term increase in headline inflation, Moody's noted signs of improving inflation dynamics. This trend suggests a restoration of credibility and effectiveness in the country's monetary policy.

"The tightening of monetary policy bolsters prospects for reducing Turkey's substantial external imbalance and for rebuilding the central bank's foreign-currency reserves," the statement added. Such developments would diminish Turkey's vulnerability to external shocks.

Looking ahead, Moody's anticipates the reduction in the external deficit will gain momentum in 2024, projecting a full-year deficit under $40 billion, or 3.3% of GDP.

The agency indicated a potential rating upgrade if Turkey maintains its current monetary policy stance beyond the upcoming municipal elections and through a slowing of economic growth. "A sustained policy approach would increase confidence that inflation will decelerate in the second half of the year and that macroeconomic imbalances are being effectively addressed," Moody's explained.

Given the positive outlook, a downgrade in Turkey's rating appears unlikely.

Moody's had previously updated Turkey's credit rating to 'B3' on August 12, 2022, adjusting the outlook to stable. Although the agency's calendar marked June 16 and December 15, 2023, for Turkey's credit rating evaluation, no updates were made on these dates.