Turkey has enjoyed a boost to its economic prospects after rating agency Moody’s upgraded its outlook on the country from stable to positive.
Moody’s cited a decisive change to monetary policy as the reason for the change.
The re-election of president Tayip Erdogan has seen Turkey abandon its low interest rate policy in favour of a more orthodox monetary policy and fiscal tightening, a move that Moody’s believes will help to bring down inflation.
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“While headline inflation is likely to rise further in the near term, there are signs that inflation dynamics are starting to turn, indicative of monetary policy regaining credibility and effectiveness,” stated Moody’s.
“The monetary tightening also improves the prospects for a reduction of Turkey’s large external imbalance and for a rebuilding of the central bank’s foreign-currency reserves, both of which would reduce the country’s vulnerability to external shocks,” added the rating agency.
The decision comes as Turkey prepares to issue its first sovereign bond of the year.
In a further sign of increased market confidence in Turkey’s economy, global asset managers Vanguard and Pimco, which manage close to US$10 trillion in assets between them, have bought Turkish assets in recent months.
“We are constructive on Turkish assets, in particular local currency assets, due to the tightening in financial conditions to rein in spending and control inflation and the gradual easing of regulations that distort the asset prices,” said Pramol Dhawan, managing director and head of emerging markets at Pimco, in comments reported by Reuters.