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Moody's puts Turkey's ratings on review for downgrade

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Moody's puts Turkey's ratings on review for downgrade

Moody's placed Turkey's ratings on review for downgrade, saying the country's external vulnerability could push its balance of payments to a level no longer consistent with the current rating.

Among the ratings placed on review for downgrade are Turkey's Ba2 long-term issuer ratings, the Ba2 senior unsecured bond ratings and (P)Ba2 senior unsecured shelf ratings.

The rating agency said weakening investor confidence, triggered in part by the presidential and parliamentary elections being moved 17 months ahead of schedule, could heighten the probability of severe balance-of-payments constraints if not addressed through credible policy actions.

Moody's noted that the decision to call early elections "exacerbated existing investor concerns regarding the negative credit impact of the economic, fiscal and monetary policy settings, and heightened concerns that the next administration would move further down the path of policy options detrimental to economic and financial stability."

The Turkish lira has fallen by roughly 20% in the past three months, while the current account deficit widened to about 6.5% of GDP on a twelve-month rolling basis as of the end of the first quarter, Moody's noted. Reserves also dropped further since peaking in October 2017 due to seasonally high debt repayments in recent months.

The rating agency said it will use the review period to assess the country's likely policy direction after the elections.

"[T]he agency will seek to understand the policy-formulation process, given that after the elections the person elected president will have significant authority over the legislative and judicial branches of government, and could potentially also exert greater influence over the legally independent central bank," Moody's said.