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The weakening of the lira caused a downgrade of Turkey’s ratings

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The weakening of the lira caused a downgrade of Turkey’s ratings
August 20
09:00 2018

The week began with unpleasant news for Turkey from international rating agencies S & P Global Ratings and Moody’s. The dramatic depreciation of the national currency caused the deterioration of the international rating of Turkey.

Thus, the long-term credit rating assigned by S & P agency has changed from “B +” to “BB-” (in foreign exchange), from “BB” to “BB-” (in Turkish lira). The agency representatives called new ratings stable.

S & P agency has not changed the short-term ratings of Turkey (both in foreign and national currencies), leaving them at the level of “B”.

Experts agree that inflation will continue to rise, reaching its maximum of 22% until the end of the year. Then it is possible to wait for the correction to the level of 20% by the mid-year 2019.

S & P also noted that the depreciation of the Turkish lira against the US dollar increased the risks and burdens on Turkish banks and a corporate sector.

Another authoritative world rating agency Moody’s has also reviewed Turkey’s long-term ratings downwards: from “Ba2” to “Ba3”. A press release issued by Moody’s on this occasion reads that the rating forecast is “negative”. The representatives of the agency said that the unpredictability of the authorities, as well as the tendency to reduce the influence of state institutions were the reasons for changing long-term ratings.

In addition, Moody’s considers the absence of a reasonable plan to eliminate the causes of the financial crisis to be a negative factor too.

A greater drop in the national Turkish currency rate became the consequence of the rating change .To date, lira has managed to lose 1.5% against the US dollar. At the moment, one should pay 6.1118 lira for one dollar. We recall that on Friday, lira fell by 3%.  For the past three weeks, the value of the Turkish lira against the US dollar has fallen by a quarter.

 

The material was prepared with the participation of Katya Gordon,
a leading analyst of the brokerage company CT Trade

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