Officials on Saturday praised the success of Türkiye's policy shift since last June, a day after Fitch upped the country's rating, citing tighter approaches to its monetary policy as helping combat inflationary trends.
Vice President Cevdet Yılmaz and Treasury and Finance Minister Mehmet Şimşek attributed the revisal to what they say are foreseeable policies as part of the government's economic program. They expressed expectations for more upgrades in the period ahead.
Fitch raised Türkiye's rating to "B+" from "B" on Friday, saying the move "reflects increased confidence in the durability and effectiveness" of policies implemented since the pivot after last year's May elections, including greater-than-expected frontloading of monetary policy, in reducing macroeconomic and external vulnerabilities.
Fitch also revised Türkiye's outlook to positive from stable. The agency had raised the country's outlook from negative in early September.
Turkish policymakers have long criticized rating agencies for falling behind markets with their assessments, calling for upgrades.
Yılmaz said the decision again demonstrated that Türkiye was in a "position it did not deserve," stressing the move was "made in the right direction."
After winning reelection last May, President Recep Tayyip Erdoğan installed a new economy administration led by Yılmaz and Şimşek that abandoned years of easing policy in favor of tightening.
An aggressive eight-month policy-tightening cycle since June raised the central bank's main interest rate by 3,650 basis points to 45%. The tightening aimed to arrest inflation, curb chronic deficits, rebuild foreign exchange reserves, and stabilize the Turkish lira.
The government will continue to implement the medium-term program (MTP) with determination, improving the investment environment. As a result, similar rating upgrades from other credit rating agencies will come, Yılmaz said in an interview with private broadcaster Habertürk.
Separately, Şimşek stated that the tangible results of the implemented program were reflected in the country's credit rating.
"International credit rating agency Fitch, not remaining indifferent to this success, upgraded our credit rating by one notch while turning our outlook to positive. The positive outlook indicates that the upgrade in rating will continue in the upcoming period," the minister said on social media platform X, formerly known as Twitter.
Türkiye's outlook was lifted this January to positive from stable by Moody's, which affirmed its B3 credit rating. S&P Global raised the country's outlook from stable to positive in December, affirming its rating at B.
Last month, the Turkish central bank paused its tightening cycle, saying it was enough to ensure disinflation. Still, it said the policy could be tightened further "in case a significant and persistent deterioration in inflation outlook is anticipated."
In the rating upgrade after 12 years, Şimşek said Türkiye's adherence to international norms and rule-based and predictable policies proved effective.
He noted that stability is a positive development because "with the further strengthening of macro-financial developments will continue to increase."
"In the second half of the year, thanks to disinflation, narrowing current account deficit and budget discipline, macro-financial stability will further solidify, and our credit rating will rise."
Inflation rose to an annual 67.07% in February, exceeding expectations and keeping up the pressure for tight monetary policy.
Officials have repeatedly said inflation is envisaged to peak by the middle of the year and enter a steep downward trend as of the second half of 2024.
Yılmaz emphasized that they prioritize the fight against inflation and have outlined this in the policy framework with the MTP. He noted they are implementing a robust program that includes monetary and fiscal policies and structural reforms.
Following last week's data, some banks and economists expressed a growing prospect of more policy steps to cool inflation after nationwide local elections on March 31, given the price pressure and strong domestic demand.
Last month, the central bank maintained its 36% year-end inflation target and vowed to keep policy tight for longer to bring inflation down to the forecasted path.
Fitch said inflation expectations have eased, and external liquidity risks have moderated, as reflected by more favorable external financing conditions, higher reserves, lower foreign exchange-protected deposits, and a narrowing current account deficit.
It said the positive outlook reflects its expectation that Türkiye's overall macroeconomic policy stance should be consistent with a significant decline in inflation, as well as a continued reduction in external vulnerabilities in terms of lower current account deficits and stronger liquidity buffers.
At the beginning of March, the country's international reserves stood at $131 billion, a $32 billion increase compared to June 2023.
Reserves declined in the first two months of this year, but Fitch sees the decline as temporary and says it reflects "reduced portfolio inflows, maturing foreign exchange-protected deposits, winter-related seasonality in external payments, and some election-related uncertainty."
The agency said lower current account deficits, sustained improvement in external financing conditions, and some portfolio inflows are expected to lift international reserves to $148 billion at the end of 2024 and $159 billion by the end of 2025, raising reserve coverage to 4.5 months of current external payments, above the 3.7 months projected for "B" peers.
The government has unveiled measures to phase out a foreign exchange-protected deposit scheme known as KKM. The scheme was introduced in late December 2021 to help reverse dollarization and support the lira.
Fitch said deposits under the program, which it sees as a "contingent claim on international reserves," declined to $77 billion at the end of February from $130 billion at the end of August.