The news that the markets have been eagerly awaiting has arrived! An international organization has changed Turkey's credit rating.

S&P announced its assessment of the Turkish economy. In a statement from the credit rating agency, it was reported that Turkey's long-term credit rating has been upgraded from "B+" to "BB-" and that the credit rating outlook is "stable." It was also noted that the country's short-term credit rating, which is "B," has been affirmed.

S&P'S STATEMENT

The statement indicated that the Central Bank of the Republic of Turkey's (CBRT) tight monetary policy stance has allowed Turkish officials to stabilize the lira, reduce inflation, rebuild reserves, and cleanse the financial system of dollarization. The statement noted that the gap in savings between Turkey and the rest of the world has narrowed, which is reflected in the approximately 4-point decrease in the current account deficit as a percentage of Gross Domestic Product (GDP) recorded since 2022. The statement also mentioned that the outlook is stable, reflecting the balanced risks over the next 12 months regarding the authorities' ambitious plans to reduce the still high inflation, manage workers' wage expectations, and rebalance the Turkish economy. S&P's statement indicated that the rating could be upgraded if further progress is made in reducing inflation to single-digit levels and restoring long-term confidence in the Turkish lira and, more broadly, in local capital markets.

EMPHASIS ON THE NON-ELECTION PERIOD

The statement pointed out that indexing the wage increase rate to the government's inflation target of 17% by the end of 2025, instead of the approximately 44% inflation rate for 2024, poses a risk to the anti-inflation program. It was stated that the wage agreement is assumed to be determined between these two extremes, but any increase rate above 30% would prolong the anti-inflation process. The statement noted that due to the lack of any planned elections in the country until 2028, there may be room to suppress demand and inflation through gradual tightening of fiscal and income policies. It was indicated that the slowdown in private consumption would play a central role in cooling the Turkish economy, with real GDP growth projected to be 2.3% in 2025.

THE RATING OUTLOOK WAS POSITIVE IN MAY

S&P had last upgraded Turkey's credit rating from "B" to "B+" in May, while maintaining a "positive" outlook on the credit rating.