Treasury and Finance Minister Mehmet Şimşek evaluated the analysis of the international credit rating agency Moody’s, which stated that Turkey’s new economy team has started to gradually correct the direction of monetary and fiscal policy.
Minister Şimşek used the following statements in his statement on his social media account:
“The international credit rating agency Moody’s evaluated that Turkey’s transition to a rule-based and predictable policy is positive in terms of the country’s credit outlook and rating.
We are determined to implement rule-based policies in line with international norms in order to ensure macro-financial stability and increase our country’s resilience to shocks. We believe this will reflect on our credit rating.”
International credit rating agency Moody’s evaluated that Turkey’s transition to a rule-based and predictable policy is positive in terms of the country’s credit outlook and rating.
To ensure macro-financial stability and to increase the resilience of our country against shocks…
— Mehmet Simsek (@memetsimsek) August 10, 2023
A return to orthodox economic policies
Reminding that President Recep Tayyip Erdoğan was re-elected for a five-year term, Moody’s annual analysis of the Turkish economy pointed out that the new government promised to return to more orthodox economic policies, including reducing inflation and reducing the country’s current account deficit.
In the analysis, it was stated that the Central Bank of the Republic of Turkey (CBRT) increased policy interest rates and gradually removed many of the disruptive macroprudential measures implemented last year that harmed the core stability of banks.
In the analysis, which emphasized that the market-induced depreciation of the Turkish lira helped exporters to regain their competitiveness, and enabled the CBRT to regain their foreign exchange reserves, it was stated that the government started to correct the financial deterioration caused by the reconstruction efforts and election expenditures after the earthquake through taxes.
“The outlook may turn positive and the rating may be raised”
In the analysis, it was stated that monetary policy tightening is expected to continue gradually until the local elections to be held in March 2024, indicating that inflation will remain at a high level in the coming months.
The analysis noted that the country’s economic outlook is stagnant and reflects balanced risks. evaluation was made.
In the analysis, it was stated that if economic growth slows down more sharply than the politically acceptable level, the risk of another policy change remains important, and the outlook may turn negative if the transition to orthodox policies is short-lived and more macroeconomic stress occurs.
‘Interest rates likely to rise further’
In the analysis, which emphasized that the appointment of Mehmet Şimşek as the Minister of Treasury and Finance and Hafize Gaye Erkan as the CBRT President, after President Erdoğan’s re-election, signaled the return to orthodox policies, Cevdet Yılmaz, who served as the Vice President of the Presidency as the Minister of Development in previous governments and is known to support orthodox economic policies, said. He was reminded that he was appointed.
In the analysis, it was mentioned that appointments with orthodox views were made to the CBRT Vice Presidents at the end of last month, and the following evaluation was made:
“Committed to lowering inflation, reducing Turkey’s major external imbalances and maintaining fiscal discipline, the new economic team has begun to gradually correct the direction of monetary and fiscal policy. The transition to more orthodox, rules-based and predictable policy-making has been credit positive and earlier than we expected. “
Turkey is expected to grow by around 2.5 percent
Despite the slowdown in growth in the last quarters, the analysis stated that it will maintain its robustness before the local elections.
In the analysis, it was pointed out that the CBRT gradually increased the policy rate from 8.5 percent to 17.5 percent in two meetings and that it is likely to increase it further, reminding that the fiscal policy was tightened through taxes.
In the analysis, which also referred to data such as credit growth, exports, industrial production and unemployment rate in the country, it was noted that Turkey’s growth is estimated to be around 2.5 percent in the next year, on the assumption that orthodox economic policies will continue and monetary tightening will accelerate.
“CBRT acted cautiously”
In the analysis, it was stated that the relaxation of macroprudential measures was positive, and it was noted that long-term growth prospects were good.
In the analysis, which reported that the ratio of public debt to GDP is expected to be 32 percent by the end of this year, it was stated that this is a low level compared to the debt ratios of peer countries.
In the analysis, it was stated that Turkey’s debt measures are sensitive to exchange rate shocks and highly sensitive to growth and financial shocks.
It was underlined that Turkish banks would benefit from a return to more orthodox monetary policy and the removal of macroprudential measures, and it was emphasized that higher interest rates would help banks recover their basic margins.
In the analysis, it was noted that the credit tightening measures of the CBRT will lead to a decrease in the credit provision, which will limit the income growth of the banks.
