The company cited improvements in Turkey's economy and debt management as the reasons behind its move. “Turkey's economy has proven to be unexpectedly robust and has recovered to pre-crisis levels,” said Sarah Carlson, Moody's vice president-senior analyst and lead sovereign analyst for Turkey, in an e-mailed report on Tuesday, underlining that the country's budget deficit and debt stock have improved beyond targets in the government's medium-term economic program.
Turkey has long been critical of the attitude of major credit rating agencies, saying many agencies have avoided raising Turkey’s credit rating to the correct level. Prime Minister Recep Tayyip Erdoğan and several ministers in his Cabinet have lambasted international credit rating agencies for treating Turkey unfairly and several businessmen and academics also joined the chorus, issuing bitter statements.
After a long period of refusing to adjust Turkey’s credit rating, Moody’s upgraded Turkey to Ba2 in January, which is still two levels below investment grade, whereas Standard & Poor’s (S&P) -- a US-based financial services company -- increased its ranking in February to BB. Fitch raised its rating to BB+ in December, or one step below investment grade.
Following Moody’s decision to upgrade Turkey’s rating outlook, experts are hoping that Moody’s and S&P will upgrade Turkey’s credit rating following upcoming national elections. However, the continuing battle to keep inflation under control and the need to tame a burgeoning current account deficit and pass legislation to establish the long-awaited fiscal rule, which should rein in the budget deficit while ensuring a sustainable growth rate, are major issues that credit rating agencies will have to consider.
Carlson said a potential upgrade to Ba1 from Ba2 depended upon a further strengthening of fiscal fundamentals and flagged concern over a widening current account deficit. On the other hand, credit ratings agencies have been looking to Turkey’s implementation of a series of benchmarks on growth and debt reduction, but the government disappointed investors in August when it said the so-called fiscal rule legislation wouldn’t be passed in time for the 2011 budget.
Fiscal targets are widely expected to be implemented after next year’s elections in the EU-candidate country.
Bonds, lira firm after Moody’s decision
Turkish bond yields fell after Moody’s raised Turkey’s credit rating outlook to positive from stable. The lira stayed firm at 1.4475 against the dollar on the interbank market from 1.4525 before the announcement. The yield on Turkey’s April 25, 2012, benchmark bond fell to 7.99 percent from 8.05 percent.“Although this is not a sovereign rating upgrade, it will have a positive impact on markets,” said Mehmet İlgen, a trader at Ata Invest. “We think the current money inflow to Turkish markets is fed by the expectation of a possible upgrade to ‘investment grade’ after the election,” he explained.
Moody’s also said it was revising upwards its 2010 economic growth forecast for Turkey to 6.5 percent and 5 percent in 2011.
Turkey’s blue chip stock index İMKB 100 was trading 0.74 percent higher at 65,901. Top-traded Garanti Bank was 1.85 percent higher at TL 8.25. Turkey’s banking index was trading up 1.33 percent. Lenders make up nearly half the value of the blue chip index.
Construction conglomerate Akfen Holding was trading 2.38 percent higher at TL 12.90 after it said it planned on using a second public offering to increase its free float to 30 percent.
The five-year credit default swap on Turkish debt, often taken to reflect the trend in investors’ perception of risk, was largely flat at 156.50.
