Bloomberg News

Fitch Says No Imminent Upgrade of Turkey Rating; Stocks Drop

September 30, 2011

(Updates with prices in second paragraph, Fitch in third and seventh paragraphs.)

Sept. 30 (Bloomberg) -- Fitch Ratings Ltd. said it won’t upgrade Turkey’s credit rating until it sees whether monetary policy will bring sustainable growth, spurring declines in stocks and bonds.

Fitch is waiting to see whether the central bank can slow the economy without prompting a recession, analyst Ed Parker said in a phone interview from London today. He made initial comments to CNBC television. The ISE National 100 Index of shares fell 1.8 percent to 58,699.52 at 4:20 p.m. Two-year bond yields rose 6 basis points to 8.40 percent, climbing for the first day in four.

“It is still uncertain whether Turkey can engineer the right balance from slowing down from a previous unsustainable pace of expansion to a sustainable pace,” Parker said. “The key element is monetary policy, whether the central bank has got it right in terms of trying to steer the economy.”

Rate Cuts

The central bank has cut interest rates three times since December, by a total of 1.25 percentage points to 5.75 percent, and at the same time raised banks’ reserve requirements to slow an expansion in loans that has widened the current account deficit to a record. The economy grew 8.8 percent annually in the second quarter, faster than India’s 7.7 percent. The current account gap widened to $74.6 billion in the 12 months through July, or about 10 percent of gross domestic product.

Turkish shares had rallied for four days this week on bets that the country will get another ratings increase. Standard & Poor’s assigned an investment-grade ranking to local-currency debt last week.

Fitch, which ranks Turkey one level below investment grade, had put the country under review for a possible upgrade at the end of 2010.

Investment grade is “certainly possible” within the next 12 months, Parker said. “We have been saying for a year now the key question for us is whether Turkey can achieve a healthy, sustainable growth rate without major macroeconomic imbalances such as high inflation and large current account deficit.”

Standard & Poor’s is also tracking the economy’s “resilience” against the likely slowdown before it upgrades its rating for Turkish long-term foreign-currency debt, analyst Frank Gill said in an interview on Sept. 21.

Turkey’s inflation rate increased to 6.7 percent in August, the highest since May, from 6.3 percent in July, the statistics agency reported on Sept. 5. A probable slowdown for inflation during September will be temporary, central bank governor Erdem Basci said in televised remarks today from the northwestern city of Edirne.

GDP may grow 7.5 percent this year, the International Monetary Fund said on Sept. 22. The Washington-based lender forecast 2.5 percent economic expansion for 2012.

--Editors: Mark Bentley

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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