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Turkey needs to address currency weakness fast, Fitch says

Turkey needs to halt the sharp slide of the lira quickly, credit rating agency Fitch said on Thursday, warning the country’s situation had worsened since its downgrade just a month ago.

The lira slumped to a record low in Istanbul, as a US move to impose sanctions on Turkey over a jailed American pastor compounded long-running worries over inflation and general economic mismanagement.

“We are paying close attention to current events,” a Fitch senior analysts, Paul Gamble, told Reuters. “Since we took the decision (to downgrade Turkey’s rating to BB on July 13) market sentiment has deteriorated further.”

“The key pressure point is the weak currency,” he added, saying he was looking at what Turkish authorities do to try and halt what has now been a 30 per cent plunge in the lira this year, almost 10 per cent of which has come in the last month.

Easing the pressure in the near term was likely to involve a combination of central bank action and an improvement in relations with the United States, he said.

“We are looking at how the situation evolves. The next scheduled (rating) review is not until December, and a lot can change before then.”

The chance of another downgrade is certainly there. Fitch kept a “negative outlook” on Turkey after last month’s one-notch cut. That brought Fitch in line with Moody’s equivalent grade but still above S&P’s “BB-” level.

“Of the negative rating sensitivities we published in our latest rating action commentary, the one that would be most relevant is a sudden stop to capital inflows or a hard landing of the economy,” Gamble said. “Particularly if it heightens stresses in the corporate and banking sector.”

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