(Bloomberg) -- Turkey’s credit rating outlook was raised by Fitch Ratings after the appointment of a new economy team that’s started to adopt more conventional policies and restore the country’s foreign reserve buffers.
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Fitch revised the outlook on the nation’s long-term foreign-currency issuer default rating to stable from negative and affirmed the IDR at B, five notches below investment grade and on par with Egypt and Mongolia.
“The revision of the outlook to stable reflects the return to a more conventional and consistent policy mix that reduces near-term macro-financial stability risks and eases balance of payments pressures,” Fitch said in a statement.
Turkey was last upgraded by Fitch more than a decade ago, receiving an investment-grade rating from the company for the first time. It’s been downgraded five times since 2017, however, as President Recep Tayyip Erdogan increasingly leaned on policies that pumped up the economy at the expense of price stability and the lira.
But in a change of tack since his reelection in May, Erdogan appointed two former Wall Street bankers to run the country’s finances after a cost-of-living crisis last year and an exodus of foreign investors.
“There is still uncertainty regarding the magnitude, longevity and success of the policy adjustment to bring down inflation, partly due to political considerations, “ Fitch said.
Finance Minister Mehmet Simsek and central bank Governor Hafize Gaye Erkan have since sought to bolster Turkey’s credibility among international bond and stock traders by pivoting from years of ultra-loose monetary policy and constant state interventions in financial markets.
Under Erkan, the central bank almost tripled its key interest rate to 25% since June, while the government announced a more realistic macroeconomic program that committed to reducing inflation and building back reserves.
The lira has lost about 30% of its value against the US dollar this year, making it the second-worst performing currency in emerging markets. Turkey is rated B3 by Moody’s Investors Service and B by S&P Global Ratings.
Despite the new policy tilt, Fitch warned in July of uncertainty about the path ahead, pointing to “Turkey’s record of policy reversals and premature policy easing, and repeated changes in central bank leadership.”
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