Turkey says ‘addressing economy concerns’ after Moody’s downgrade threat

Turkey yesterday said it was addressing the concerns of financial markets about the economy after Moody’s threatened a further downgrade of the rating on the ability of the government to pay back its debts.Moody’s, which had already downgraded Turkey’s ratings to Ba2 in March, said it was placing the assessment on review for a possible new downgrade due to uncertainty about the future direction of economic policy.Turkey is in the throes of a campaign for June 24 elections where President Recep Tayyip Erdogan is seeking a new mandate and a thumping parliamentary majority.But there are concerns about the economy at home and abroad, with the lira under constant pressure, the current account deficit bloated and inflation well into double digits.“We are addressing market concerns through credible policy actions,” Deputy Prime Minister Mehmet Simsek, the government’s pointman on the economy, wrote on Twitter after the downgrade review was announced.He said these actions included a “tightened and simplified” monetary policy, a tighter fiscal policy and speeding up reforms after the elections.Meanwhile, Fitch Ratings placed the long-term foreign currency ratings of 25 Turkish banks on watch negative, citing risks to performance, asset quality and liquidity after the lira’s depreciation.Fitch said it expected a “deterioration in banks’ financial metrics” while risks to financial stability “also remain significant”.Economy Minister Nihat Zeybekci issued a much less market-friendly statement than his cabinet colleague Simsek, accusing both Fitch and Moody’s of supporting “games against Turkey which have manipulative and speculative ends”.He said there were “no concerns, no problems” about the health of Turkish banks, dismissing the ratings actions as “over-hasty and having a purpose”.But Moody’s said “mounting uncertainty” about the future direction of economic policy as the election looms was “raising the risk of severe pressures on Turkey’s balance of payments”.It said that the “recent erosion” of investor confidence in Turkey would continue if there were no “credible policy actions” after the elections.It said the Turkish lira had lost 20% in value over the last three months while the current account deficit had widened to an estimated 6.5% of gross domestic product.“The authorities have made limited progress in addressing Turkey’s structural economic problems...in recent years,” it said.The lira has also not been helped by comments from Erdogan that he intends to hold greater sway over the central bank and also his unorthodox opinion that lower interest rates can bring down inflation.The central bank last month sought to reassure markets with an emergency 300 basis points rate hike and also simplifying its notoriously complex monetary policy, giving some relief to the lira.