The downgrade intensifies pressure on Turkey, which already is bracing for the fallout from its purchase of a Russian missile-defence system.
Sunday 14, July 2019 BY KUDAKWASHE MUZORIWA
Fitch Ratings has downgraded Turkey's long-term foreign-currency issuer default rating (IDR) to BB- from BB with a negative outlook, days after the dismissal of Türkiye Cumhuriyet Merkez Bankası (TCMB)’s Governor, Murat Cetinkaya.
The rating agency stated that the dismissal of the central bank governor Murat Cetinkaya heightens doubts over the authorities' tolerance for a period of sustained below-trend growth and disinflation that Fitch considers consistent with rebalancing and stabilisation of the economy.
The downgrade of Turkey’s IDR also highlights a deterioration in institutional independence and economic policy coherence and credibility, Fitch said.
Douglas Winslow, Fitch’s Primary Rating Analyst, said, “Less predictable decision-making comes in an environment where checks and balances have been eroded, and there has been a concentration of powers in the presidency.”
Additionally, Turkey continues to run the risk of US sanctions, triggered by delivery of S400 missile components from Russia, which is reportedly close, the US has threatened to punish President Recep Tayyip Erdogan’s government over the purchase, which it says puts at risk the Pentagon’s costliest programme, the F-35 fighter jet.
Fitch expects US sanctions to be of a relatively mild form with minimal direct economic effect, the impact on sentiment could be significant.
Erdogan has regularly expressed unorthodox views on the relationship between interest rates and inflation and has indicated that the governor was replaced because he did not conform government views on interest rates.