S&P Global Ratings on Jan. 27 revised to negative from stable its outlook on Turkey's unsolicited long-term foreign- and local-currency ratings.
The agency said the outlook revision reflects risks to the country's economy from policy constraints, rising inflation, and exchange rate and balance-of-payments pressures. The country's lira has depreciated by 18% against the U.S. dollar and 15% against the euro since it last reviewed the country's ratings, S&P said, noting that the Turkish central bank's monetary policy response to rising currency and inflationary pressures may be insufficient to anchor its inflation targeting regime.
The key weakness for the ratings remains to be Turkey's external position as a result of its considerable net external liability position and related high external financing needs, S&P said. The risk of a marked decline in external financing availability for the country could lead to financial sector stress, increased governmental contingent liabilities and a sharp economic slowdown.
Turkey's domestic banks are expected to remain well-regulated and amply capitalized, S&P said. However, the agency noted that it still expects banks' asset quality to gradually deteriorate.
The agency said its current ratings on Turkey also factors in the likelihood of continuing domestic political volatility in the country.
Turkey's unsolicited BB/B foreign currency long- and short-term sovereign credit ratings, BB+/B local-currency long- and short-term sovereign credit ratings were also affirmed, along with its trAA+/trA-1 long- and short-term Turkey national scale ratings.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.