Standard & Poor’s cut its outlook for Turkey’s long-term foreign and local currency credit ratings to stable from positive, citing “less buoyant external demand and worsening terms of trade.”
The lira weakened for the first time in six days after the statement, trading 0.3 percent lower at 1.7621 per dollar at 1:24 p.m. in Istanbul. Turkish bond and stock markets are closed today for a public holiday.
“Less-buoyant external demand and worsening terms of trade -the price of exports compared to imports- have, in our view, made economic rebalancing more difficult, and have increased the risks to Turkey’s creditworthiness given its high external debt and the state budget’s reliance on indirect tax revenues,” S&P said.
Turkey’s gross external financing needs will reach the equivalent of 142 percent of its current account receipts plus usable reserves this year, “one of the highest ratios for a rated sovereign,” S&P said.
“This heavy reliance on external savings exposes Turkey to shocks,” S&P said.
Turkey’s central bank has sought to rein loan growth it blames for fueling the largest current-account deficit among emerging markets by adjusting interest rates on a daily basis between 5.75 percent and 11.5 percent. Depreciation in the lira last year sent inflation to the highest level in three years at 10.5 percent.
‘Unorthodox Policy’
The “problem is the international community just do not like the central bank’s unorthodox policy in context of wide current account and external financing needs,” Tim Ash, head of emerging markets at the Royal Bank of Scotland Group Plc in London, said in an e-mailed note.
S&P affirmed Turkey’s long-term foreign currency sovereign credit ratings at BB.
“I am more positive than S&P,” Aurelija Augulyte, an emerging-market analyst at Nordea Markets in Copenhagen, said in e-mailed comments. “As long as the global markets are at least stable the Turkish economy will keep rebalancing gradually and the oil price decline in the short term will help.”
Crude oil for June delivery fell 9 cents to $104.78 a barrel today on the New York Mercantile Exchange, down from $109.77 on Feb. 24.
Turkey’s trade deficit declined to $7.35 billion in March from $9.8 billion a year earlier, the state statistics office in Ankara said on its website yesterday as exports rose 12 percent and imports fell 4.8 percent in the month.
Source: Bloomberg