ISTANBUL: Ratings agency Fitch HAS downgraded Turkey’s debt rating to “B” from “B+” citing increasing inflation and broad concerns about the economy, from a widening current account deficit to interventionist policies.

Inflation in Turkey shot to a 24-year high 78.62 per cent in June, mainly due to a currency crisis at the end of last year and the lira’s continued decline.

The economic fallout from Russia’s invasion of Ukraine has also stoked prices in import-dependent Turkey, especially due to rising energy and commodity costs.

In a statement on Friday, the agency affirmed its ratings outlook at “negative”, adding that it expects Turkey’s consumption to slow given rising inflation, a weaker exchange rate and diminishing domestic confidence. Fitch forecast annual inflation to average 71.4pc this year, the highest among sovereigns rated by the agency, adding that its trajectory remains highly uncertain. Average inflation is set to slow to 57pc in 2023, Fitch said, due to overly accommodative policies until parliamentary and presidential elections scheduled for no later than June 2023.

The lira lost 44pc of its value against the dollar last year, mainly due to a series of rate cuts from the central bank, sought by President Tayyip Erdogan. The currency is down a further 23pc so far this year.

The government has taken steps to stem the lira’s decline. A recent move by the BDDK banking watchdog to restrict lira lending to foreign currency-rich companies helped it rally briefly last week as corporates sold hard currencies.

Published in Dawn, July 10th, 2022