Fitch Evaluated The CBRT's Rate Cut

Fitch evaluated the CBRT's rate cut. Credit rating agency Fitch said that the CBRT rate cut may harm the moderate external recovery.

Fitch Ratings stated that the Central Bank of the Republic of Turkey (CBRT)'s decision to cut interest rates by 100 basis points and the change in verbal guidance will increase the difficulty in keeping inflation under control, reflecting its weak monetary policy credibility. Expecting the year-end CPI to be 17.2 percent, Fitch stated that the CPI forecast may be revised upwards with solid domestic demand, high international energy prices, additional weakness in the lira and rising inflation expectations. In the report, it was stated that the recovery in reserves and tourism, the narrowing in the current account deficit and the absence of problems in accessing external finance softened the short-term financial pressures, however, it was stated that external vulnerabilities remained high due to low reserves, dependence on currency swaps, high dollarization and more challenging external conditions. Fitch said, "These vulnerabilities could be exacerbated by weakening domestic confidence and dollarization." Stating that they think that President Recep Tayyip Erdogan's statement that more Russian military equipment may be purchased may increase tensions with the United States, Fitch noted that the possibility of extra purchases resulting in US sanctions has been mentioned before. Last month, Fitch left Turkey's rating unchanged at BB-, with its outlook stable, and stated that the rating reflects high inflation and weak monetary policy credibility.