REUTERS/MURAD SEZER/FILE PHOTO
(Reuters) Ratings agency Standard & Poor’s on Friday cut its outlook for Turkey to “negative” from “stable”, citing growing constraints on policymakers’ ability to contain inflation and shore up the tumbling lira currency.The lowered outlook was an unexpected move on a day when markets are anticipating that rival agency Fitch will cut Turkey’s sovereign debt to junk – depriving a major emerging market of its only investment grade rating.
S&P, which has a “BB/B” rating, also cited concerns about domestic politics following the failed July 15 coup and President Tayyip Erdogan’s push for an executive presidency, which it said could limit parliamentary and judicial oversight of government decisions.
“We are revising our outlook to negative to reflect what we consider to be rising constraints on policymakers’ ability to tame inflationary and currency pressures,” S&P said in its statement.
Talk about kicking someone when they are down, S&P changes BB outlook to negative. Rating already low, so this not expected. Fitch to come,” said economist Timothy Ash on Twitter.
The lira TRYTOM=D3 has fallen some 8 percent so far this year, making it one of the worst-performing major emerging market currencies.
Economists have said a substantial rate hike is necessary to put a floor under the lira and contain inflation that is expected to hit double-digits in the first quarter.
The central bank raised rates this week, but not enough to stop the lira from weakening further. President Tayyip Erdogan, who wants cheap credit to bolster the economy, has described himself as an “enemy” of interest rates, leading to concern the central bank is less than independent.
(Reporting by Kanika Sikka in Bengaluru and David Dolan in Istanbul; editing by John Stonestreet)