According to the statement made by Fitch, the long-term foreign currency credit rating was increased from "B+" to "BB-". Following the increase in the credit rating, the outlook was revised from "positive" to "stable".

In the Forex News survey, the credit rating was expected to rise to "BB-" with a "positive" outlook.

Fitch said that positive real interest rates, low current account deficits and a steady and gradual decline in foreign exchange-hedged deposits are likely to support the durability of the improvement in external buffers.

“We expect reserves to increase to 158 billion USD by the end of 2024 and 165 billion USD by the end of 2025,” the statement said.

Fitch expressed greater confidence that maintaining the tight monetary policy stance (with an easing cycle starting in early 2025), together with projected fiscal consolidation and prudent minimum wage adjustments, will support a significant disinflation and help sustain improved external liquidity buffers, lower current account deficits and reduced dollarization.

The institution, which announced that inflation is expected to end 2024 at 43%, said, “This will lead to an average inflation of 59.5% for the year; average inflation will then fall to 31% in 2025 (21% by the end of 2025), which will be the highest level in the “BB” rating category. Given the still high projected inflation level, premature easing of monetary policy or abandoning the current policy direction, which is not our base case, could revive inflationary pressures and thus macro-financial stability and balance of payments risks.”

“Our fundamental view is that the current economic program continues to receive support from the political leadership. However, in Fitch’s view, given Turkey’s recent history, the strong belief in low interest rates at the highest political levels, and the potential resistance from interest groups and lobby groups, the risk of policy reversals remains,” the statement said.

Fitch sees growth slowing to 3.5% in 2024 and remaining subdued at 2.8% in 2025, with the EU's projected gradual recovery supporting net exports.

Fitch last upgraded Turkey’s credit rating from “B” to “B+” and its outlook from “stable” to “positive” on March 8, 2024.

✒️Ekoturk