ISTANBUL, May 17: Turkey hailed its second investment grade rating on Friday, seeing it as a seal of approval from international markets for a decade of economic reform.
Investors joined in, driving sovereign bond yields to record lows. Government enthusiasm was tempered, however, by some concern that the move, coinciding with a visit by Prime Minister Tayyip Erdogan to Washington, might trigger over-large capital inflows into the lira currency.
Moody’s assigning a Baa3 rating with a stable outlook to Turkey late on Thursday, making it eligible for inclusion in a number of investment-grade only bond indices and adding to the economy’s switch from an emerging market to a developed one. Fitch Ratings lifted Turkey to investment-grade in November, while Standard & Poor’s rates Turkey one notch below.
Since his conservative, pro-market AK Party first came to power in 2002, Erdogan has transformed a crisis-prone economy with chronic inflation into Europe’s fastest growing country, tripling per capita income, in stark contrast with neighbouring eurozone member Greece.
The largely Muslim country’s success coincides with economic disarray in the European Union, which Turkey has long sought to join despite strong opposition from many in the bloc.
“Turkey long deserved this rating, or an even higher one, both economically and politically. I see this as a delayed recognition of what we deserved,” Economy Minister Zafer Caglayan said in a statement.
“We now expect much greater investments, both in terms of direct and portfolio investments. The central bank needs to be ready for the pressures this will exert on the lira,” he said.
Turkey’s two-year benchmark bond yield hit an all-time low of 4.61 per cent, having already sunk some 20 basis points to 4.81 per cent on Thursday after the central bank cut key interest rates by 50 basis points. Yields were at more than 6 per cent at the start of the year.
“(This) should attract longer term capital inflows into the economy and support growth. This is a very impressive achievement in turbulent global conditions,” said Manik Narain, emerging markets strategist at UBS.
Deputy Prime Minister Ali Babacan, who is in charge of the economy, echoed Caglayan’s criticism of the time it has taken for Turkey to attain its current rating levels.
“This decision is as correct as it is late. Due to the right steps that we have taken on the economy, our country’s indicators in global markets have for a long time been on a similar level as those countries with investment-grade credit ratings,” he said in a statement.
The lira was at 1.8360 against the dollar, having softened to 1.8300 on Thursday after the rate cut. The main share index, which has surged 18 per cent this year, was up 0.26 per cent at 92,182.10 points on Friday.—Reuters