Turkey cut to junk after Moody’s review

Downgrade could drive forced selling of as much as $8.7b in Turkish bonds

Turkey’s sovereign credit rating was cut to junk by Moody’s Investor Service, which concluded a review initiated after an unsuccessful coup attempt on July 15.

Moody’s cited rising risks related to Turkey’s external fin-ancing needs and a weakening in credit fundamentals as economic growth slows. The rating was cut to Ba1 from Baa3, leaving Fitch Ratings as the only major ratings company to keep Turkey at investment grade.

“The risk of a sudden, disruptive reversal in foreign capital flows, a more rapid fall in reserves and, in a worstcase scenario, a balance of payments crisis has increased,” Moody’s said in an emailed statement announcing the decision late Friday. “This slow deterioration in Turkey’s credit profile will continue over the next two to three years and the balance of risks are better captured at a Ba1 rating level.”

Difficulties

With the rating cut, the difficulties Turkey faces in attracting the foreign capital needed to cover its currentaccount deficit, the fourth largest in the G20 group of major economies, are likely to be compounded. The downgrade could drive forced selling of as much as $8.7 billion in Turkish bonds, JPMorgan Chase & Co said in August. Many of the world’s biggest funds require investmentgrade ratings from two of the three major ratings companies — Fitch, Moody’s and S&P Global — to consider an asset for investment.

The lira weakened 0.9 per cent to 2.9689 by the close of trading at midnight in Istanbul. The currency has lost about 40 per cent of its value against the dollar since 2013.