This decision reflects several key improvements in Türkiye's economic management, particularly a decisive return to orthodox monetary policies, which are beginning to reduce the country’s significant macroeconomic imbalances.
Inflation and domestic demand in Türkiye have started to moderate, and inflationary pressures are expected to ease significantly through the rest of 2024 and into 2025. The Central Bank of Türkiye (CBRT) has been enhancing the credibility of its monetary policy, which is helping to restore confidence in the Turkish lira and reduce Türkiye's elevated external vulnerabilities.
Moody’s explained that the positive outlook is due to a balance of risks that are now skewed to the upside. If the credibility and effectiveness of Türkiye’s monetary policies continue to improve, the country’s underlying credit strengths—such as its diversified and competitive economy, as well as its relatively strong fiscal and debt metrics—could become more prominent. These strengths would be particularly evident if structural changes are implemented to prevent future inflation shocks.
In addition to upgrading Türkiye's issuer ratings, Moody's also raised the local-currency country ceiling to Ba1 from Ba3 and the foreign-currency ceiling to Ba3 from B2. While the level of dollarization in Türkiye remains high, the central bank’s stringent monetary policies have increased the attractiveness of the Turkish lira, which is evident from the rise in lira deposits.
Looking ahead, Moody’s expects consumer inflation in Türkiye to drop below 45% by December, aided by a slowdown in domestic demand and an appreciation in the real exchange rate. The current-account deficit is projected to decrease to 2.4% of GDP in 2024 and below 2% in 2025, down from 5% in 2022.
The central bank's foreign-currency reserves have significantly improved, reaching their highest level in more than a decade. Combined with gold reserves, Türkiye’s total reserves are substantial, bolstering the country’s financial stability.
Moody’s indicated that Türkiye's rating could be upgraded further if the authorities manage to sustain lower inflation, achieve lasting de-dollarization, and strengthen the current account position. Conversely, if these improvements are not supported by structural changes and if high inflation or excessive government spending persist, the outlook could be revised to stable.
Moody’s upgrade of Türkiye’s ratings reflects positive developments in the country’s economic policies and governance. Continued progress in these areas, coupled with structural reforms, could further enhance Türkiye’s economic stability and creditworthiness. (ILKHA)