Türkiye maintains credit rating as S&P Global points to disinflation, reserve accumulation for potential upgrade

By Nuran Erkul and Emir Yildirim

LONDON ISTANBUL (AA) - Türkiye maintained its S&P Global credit rating at “BB-/B” in its April assessment, while the agency skipped a rating decision and published a detailed analysis earlier this week.

Karen Vartapetov, lead Türkiye analyst and credit rating director for Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) at S&P Global, told Anadolu that faster-than-expected disinflation could prompt an update to the country’s credit rating.

Vartapetov stated that maintaining household confidence in the lira and strengthening international reserves will play key roles in a potential credit rating update.

She noted that while the agency skipped its rating update, the April rating and the “stable” outlook for the Turkish economy remain valid, adding that not publishing a rating assessment does not imply sudden changes, as the stable outlook remains.

“The upside pressure we mention, and we’ve been mentioning them for some time, is continued disinflation -- progress in lowering inflation, probably to single digits (which may be) too ambitious, but lower teens,” she said.

S&P Global projects Türkiye’s annual inflation to average 30.9% this year before easing to 21.7% in 2027.

“While foreign exchange or international reserves of the central bank continue rebuilding and emit the continued confidence of residents in the Turkish lira, and no external shocks and no significant policy reversals (come to the fore alongside) continued progress on disinflation, probably stronger than what we forecast, that would be compatible with a higher rating,” she added.

Vartapetov said tangible progress has been made in core inflation, but it will take more time to anchor inflation expectations because of price-setting behavior, while noting that monetary policy needs to encourage enough households to hold their savings in the lira rather than in foreign currency.

She noted that Türkiye’s headline inflation is projected to rise around seven percentage points due to the energy price shock stemming from the Middle East war.

“If anything, the second-round effect of the energy price shock, something which we really were concerned about, have been relatively contained, and that that is a result of decelerating, softening domestic demand, something which the central bank has always been trying to achieve,” she said. “It is more difficult for firms to pass on higher prices to consumers, and that’s why I think the policy mix and or the monetary policy stance is kind of finally making its way through to the economy, and there's some progress indeed in terms of underlying inflation.”

“At the same time, the external environment remains extremely challenging, volatile -- global commodity markets, energy markets, global central banks’ decisions, which are tightening policies -- it remains a very difficult environment for the central bank to continue disinflation. The central bank will have to be very cautious in order to continue re-anchoring inflation expectations,” she added.

Vartapetov said the Turkish Central Bank (CBRT) is expected to keep its policy rate at a minimum of 35% through the end of the year unless energy prices stabilize, and to cut rates next year.

She noted that the ongoing liquidation of certain investment funds has yet to trigger a broader financial crisis or undermine confidence in the Turkish lira, as capital exiting those assets largely flocked to lira-dominated bank deposits, leading to the best possible outcome for the disruption.

“We need to see how the government responds to unresolved fund liquidations, to compensation the investors, and so on, and whether investor confidence could finally be hit at some point, if they’re kind of not happy with the way the government treats them,” she said. “The risks are there, and so far, the implications have been relatively contained. The policy response has been very timely, very rapid.”

Looking ahead, S&P Global expects the Turkish economy to grow 3% in 2026, slightly down due to regional conflicts, and to accelerate to 3.7% in 2027.

Nuran Erkul Kaya