Credit ratings agencies issue mixed messages on Turkey

• Fitch upgrades outlook
• Moody’s unchanged
• Warnings on inflation

Leading credit ratings agencies have sent mixed messages about the Turkish economy, with Fitch upgrading its outlook while Moody’s warned about inflation risks and budgetary pressures.

Fitch raised Turkey’s outlook to positive last Friday while maintaining the country’s long-term rating at BB-, short of investment grade.

The agency’s statement said: “The ratings are supported by Turkey’s large and diversified economy, low government debt and record of sustaining access to external financing.”

However, it added that high inflation, a history of political interference in monetary policy and external crises could affect the economy. 

By contrast, Moody’s maintained its Ba3 score and stable outlook in a report published last Friday. The rating is three rungs below investment grade. 

Despite Turkey’s strong economy and shift towards more orthodox monetary policy, Moody’s said the pace of disinflation had slowed. The 2025 year-end figure of 30.9 percent was above government forecasts. This may have also affected moves on interest rates.

Ahead of the agencies’ reports last week, the Turkish central bank cut its key lending rate by 1 percentage point, less than market expectations. This took the rate to 37 percent, with the central bank stressing the need to maintain anti-inflationary measures. 

National elections are scheduled for 2028 and Moody’s also flagged the potential for populist policies to be adopted in an attempt to win votes. It pointed to aggressive credit growth, high wage increases and increased state spending as “policies that would again fuel economic imbalances”, calling this “a key downside risk”.

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Economist Mustafa Sönmez said both agencies had kept an eye on the upside risk of inflation in their assessments, but external factors would also come into play. 

“Considering the rating domestically, one of the main concerns is inflation and the ambiguity over that,” he told AGBI. He added that monthly inflation was expected to be about 4 percent in January, so annualised inflation was likely to increase.

As also noted by Fitch, external factors could put pressure on the Turkish economy.

“There are also now many possible foreign developments that would directly impact Turkey that were weighed, especially in Syria, neighbouring Iran and even developments in the Ukraine-Russia war that call for caution,” Sönmez said.