Fitch downgrades Turkey’s outlook to negative, with BB- rating

Anil Panchal FXStreet

Early Friday morning in Asia, global rating giant Fitch crossed wires while conveying the news to downgrade Turkish long-term Issuer Default Ratings (IDRs) to negative from stable. The rating giant kept the status of BB- for Turkey’s IDR unchanged.

Key quotes (from Fitch)

The central bank's premature monetary policy easing cycle and the prospect of further rate cuts or additional economic stimulus ahead of the 2023 presidential election have led to a deterioration in domestic confidence, reflected in a sharp depreciation of the Turkish lira, including unprecedented intra-day volatility, and rising inflation.

After the 2018 and 2020 crises, Turkey enters this new period of stress from a vulnerable position, with a high degree of uncertainty regarding the economic authorities' policy reaction function, high external financing requirements, deteriorating inflation dynamics and weakened external buffers.

The central bank has repeatedly changed its policy guidance in recent months from a commitment to maintaining positive real rates to focusing on core inflation dynamics, and more recently on narrowing the current account deficit.

We forecast inflation to reach 25% by end-2021 and remain one of the highest among rated sovereigns, averaging 20% in 2022-2023.

There is a high degree of uncertainty regarding the timing and type of policy response due to the public statements of government authorities, including the president, in favor of low rates and a weaker lira, and the increased visibility of political interference in the central bank decisions and management.

Moreover, the focus of the government on supporting faster commercial credit growth, a key rationale behind the easing cycle in Fitch's view, and the prospect of significant real wage increases for 2022 could reverse the improvement in the current account (forecast to halve to 2.5% of GDP in 2021) and increase external financing pressures.

USD/TRY en-route $14.00

Having reacted to Turkish Prime Minister Erdogan Recep Tayyip Erdoğan’s action, by replacing Finance Minister with his Deputy Nureddin Nebati, USD/TRY remains firmer around $13.69 by the press time. That said, the Turkish Lira (TRY) pair is well-set to refresh the record top of $13.95.

Read: Turkish Finance Minister Nebati says high interest rates won't be a priority

Author

Anil Panchal

FXStreet

Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.

EUR/USD hovers around 1.1850 ahead of FOMC Minutes

EUR/USD stays on the back foot around 1.1850 in the European session on Wednesday, pressured by renewed US Dollar demand. Traders now look forward to the Minutes of the Fed's January monetary policy meeting for fresh signals on future rate cuts.

GBP/USD defends 1.3550 after UK inflation data

GBP/USD is holding above 1.3550 in Wednesday's European morning, little changed following the UK Consumer Price Index (CPI) data release. The UK inflation eased as expected in January, reaffirming bets for a March BoE interest rate cut, especially after Tuesday's weak employment report.

Gold retains bullish bias amid Fed rate cut bets, ahead of Fed Minutes

Gold sticks to modest intraday gains through the early European session, reversing a major part of the previous day's heavy losses of more than 2%, to the $4,843-4,842 region or a nearly two-week low. That said, the fundamental backdrop warrants caution for bulls ahead of the FOMC Minutes, which will look for more cues about the US Federal Reserve's rate-cut path.

Pi Network rally defies market pressure ahead of its first anniversary

Pi Network is trading above $0.1900 at press time on Wednesday, extending the weekly gains by nearly 8% so far. The steady recovery is supported by a short-term pause in mainnet migration, which reduces pressure on the PI token supply for Centralized Exchanges. The technical outlook focuses on the $0.1919 resistance as bullish momentum increases.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Top 3 Price Prediction: Bitcoin, Ethereum, and Ripple face downside risk as bears regain control

Bitcoin, Ethereum, and Ripple remain under pressure on Wednesday, with the broader trend still sideways. BTC is edging below $68,000, nearing the lower consolidating boundary, while ETH and XRP also declined slightly, approaching their key supports.