Aug 09 2018

Weak Turkish lira is key pressure point, says Fitch

Turkey needs to halt the sharp slide of the lira quickly, credit rating agency Fitch said on Thursday to Reuters and warned that the country’s situation had worsened since Fitch downgraded Turkey’s rating to BB on July 13.

Due to the tension between Turkey and the United States over the release of Pastor Andrew Brunson, whose imprisonment and possible life sentence in Turkey on terror charges led the U.S. administration’s decision to impose sanctions on Turkey, compounded with long-running worries over inflation and general economic mismanagement, the Turkish lira slumped to a series of record lows since July.

Paul Gamble, a senior analyst in Fitch told Reuters that the credit agency was paying a close attention to current events in Turkey, adding that the key pressure comes from the weak currency, as Turkish lira has plunged by 30 percent this year, 10 percent of which has come in the last month.

The Turkish Central Bank’s intervention and an improvement in relations between Turkey and the United States are prerequisites for easing the pressure in the near term according to Gamble.

The next scheduled review of Fitch is set for December and another downgrade is on the horizon, Reuters said. 

“Of the negative rating sensitivities we published in our latest rating action commentary, the one that would be most relevant is a sudden stop to capital inflows or a hard landing of the economy,” Gamble told Reuters. “Particularly if it heightens stresses in the corporate and banking sector.”