S&P cuts Turkey’s credit rating deeper into ‘junk’
ISTANBUL (Reuters) – Standard & Poor’s said on Friday it had cut Turkey’s sovereign credit rating deeper into “junk” territory, citing extreme lira volatility and forecasting a recession next year, adding to the country’s woes as it deals with a currency crisis.
The rating agency downgraded Turkey’s long-term foreign currency sovereign credit rating to ‘B+’ and the long-term local currency rating to ‘BB-’ in a move which came after the lira lost some 40 percent of its value against the dollar this year.
“The downgrade reflects our expectation that the extreme volatility of the Turkish lira and the resulting projected sharp balance of payments adjustment will undermine Turkey’s economy. We forecast a recession next year,” S&P said.
It also forecast that inflation will peak at 22 percent over the next four months and said the weakening lira was putting pressure on the indebted corporate sector and had considerably increased the funding risk for Turkey’s banks.
“Despite heightened economic risks, we believe the policy response from Turkey’s monetary and fiscal authorities has so far been limited,” the statement added.
The currency crisis has been precipitated by investor alarm about President Tayyip Erdogan’s influence over monetary policy and fueled by a deepening row between Turkey and the United States.
Meanwhile, a day after two major ratings agencies downgraded Turkey closer to junk status amid a currency crisis, Turkish President Tayyip Erdogan said he would challenge those playing “games” on the economy.
“Today some people are trying to threaten us through the economy, through interest rates, foreign exchange, investment and inflation,” Erdogan told the congress of his ruling AK Party.
The lira has plunged as investors fret about Erdogan’s influence over monetary policy.
Heavy selling in recent weeks has spread to other emerging market currencies and global stocks and deepened concerns about the economy, particularly Turkey’s dependence on energy imports and whether foreign-currency debt poses a risk to banks.
On Friday, Turkey’s battered lira weakened three percent after a Turkish court rejected an American pastor’ s appeal for release, drawing a stiff rebuke from President Donald Trump, who said the United States would not take the detention “sitting down.” The case of Andrew Brunson, an evangelical Christian missionary from North Carolina who has lived in Turkey for two decades, has become a flashpoint between Washington and Ankara and accelerated a widening currency crisis.