“WHO CARES?”
MOODY’S DOWNGRADES TURKEY’S SOVEREIGN RATING, MARKETS SHRUG
Ratings agency Moody’s cut Turkey’s sovereign rating further into junk territory overnight, citing a continued weakening of its economic and political institutions and the increased risks from its widening current account deficit. Ankara dismissed the decision, saying it was not credible. Moody’s downgraded Turkey by one notch to Ba2. “The government appears still to be focused on short-term measures, to the detriment of effective monetary policy and of fundamental economic reform,” Moody’s said in a statement. It added that set against a negative institutional backdrop, Turkey’s external position, debt and rollover needs had continued to deteriorate. The downgrade was shrugged off by financial markets and dismissed by Turkey’s government, which has vaunted a strong economic recovery after a brief dip following 2016’s failed coup. GDP surged 11 percent in Q3 2017. “Today the markets had zero reaction to the Moody’s report. The Turkish economy continues its growth path with a strong structure and high quality in public administration,” Finance Minister Naci Agbal was quoted by state-run Anadolu Agency as saying. “The decision has no reputability at all.” Moody’s had already cut Turkey’s rating to a subinvestment grade Ba1 in September 2016 following the attempted putsch, which undermined investor sentiment toward what was once seen as one of the world’s most promising emerging markets. One banker described the Moody’s downgrade as a “surprise development” that could put some pressure on Turkish markets, although he said there was no fundamental difference between a Ba1 and Ba2 rating. “I think this decision reflects the course of Turkey-U.S. relations, as we are not in a different place in an economic sense from where we were a year ago,” said the banker, who declined to be identified.
External shock risk Moody’s also referred to “the increased risk of an external shock crystallizing, given the country’s wide current account deficit, higher external debt and associated large rollover requirements in the context of heightened political risks.” Turkey’s central bank on Wednesday kept interest rates steady and said it would keep policy tight given double-digit inflation. President Tayyip Erdogan has repeatedly called for cheaper credit to boost the economy, leading to investor concern about political pressure on economic policy.