S&P revises Turkey's credit rating outlook to negative

S&P said in a statement the revision caused by "fraught political and global environment that the country faces in the near term."

S&P affirmed the 'BB-' long-term foreign currency and 'BB' long-term local currency, 'B' short-term foreign and local currency sovereign credit ratings on Turkey, and 'trAA+' long-term and 'trA-1' short-term Turkish national scale ratings.   Â

"The deteriorating macroeconomic environment threatens to aggravate Turkey's external vulnerability and skew the risks to its fiscal and economic prospects to the downside," S&P credit analyst Farouk Soussa said in a statement.

This massive cumulative inflow has subjected the relatively shallow Turkish domestic and foreign exchange markets to pronounced downswings when foreign investors withdraw their funds en masse in response to either changing global liquidity conditions, or a perceived increase in domestic risk, S&P said.

Such swings may have a detrimental effect on Turkey's creditworthiness if they are prolonged, raising the government's financing costs and negatively impacting the domestic economy, it added.

"In recent months, global liquidity conditions have been deteriorating, darkening Turkey's financing outlook, and heightened domestic political uncertainty significantly exacerbates this effect... The increasingly challenging political and global environment that Turkey faces in the near term raises the likelihood of a prolonged deterioration in Turkey's financing conditions," Soussa said.

The Turkish lira weakened on Thursday after the ratings agency outlook revision and March inflation came out higher than expected.  The lira rose as much as 1.3085 against the dollar in Friday-dated interbank trade, weakening from a close of 1.2815.

 

The Turkish Statistics Institute said on Thursday Turkey's consumer prices rose 0.96 percent month-on-month in March, above forecasts, for a year-on-year rise of 9.15 percent. The producer price index rose 3.17 percent in the month, also well above forecasts, for an annual rise of 10.50 percent.