Senior Director Erich Arispe Morales Highlights Turkiye’s Economic Stabilization Efforts and the Positive Impact of Tight Monetary Policy
Fitch Ratings recently upgraded Turkiye’s credit rating, citing improvements in economic policies and inflation management. Erich Arispe Morales, Senior Director at Fitch Ratings, expressed confidence in Turkiye’s ability to maintain a tight monetary stance, which is expected to support the country’s ongoing economic stabilization.
Economic Program and Policy Shifts
Following Turkiye’s recent general elections, a shift in economic policies has improved the country’s credit outlook. According to Morales, the support from political leadership is key to sustaining this progress. Fitch Ratings upgraded Turkiye’s credit rating from “B+” to “BB-“, with a stable outlook.
Morales highlighted that key economic vulnerabilities have started to improve, with an increase in international reserves. The composition and levels of these reserves have seen substantial gains this year, contributing to a more robust economic outlook.
Strong Monetary Policy and Inflation Control
Morales emphasized that Turkiye’s government and economic authorities have successfully maintained tight monetary policies, which are crucial for controlling inflation. In 2024, the budget deficit, currently at around 5% of GDP, is expected to be consolidated to around 3% next year.
Morales noted, “We believe that Turkiye’s income policies will become more aligned with the Central Bank of the Republic of Turkiye’s (CBRT) inflation reduction efforts. Inflation remains the country’s greatest challenge, and a sustainable path is essential to prevent vulnerabilities.”
Inflation and Growth Projections
Fitch Ratings expects Turkiye’s inflation rate to fall to 43% by the end of 2024 and further down to 21% by the end of 2025. Monthly inflationary pressures are already showing signs of easing, which will adjust market inflation expectations.
However, Morales warned that the decline in inflation expectations among households and firms could take more time. He added, “While inflation expectations are improving, their alignment and sustainability will depend on continued tight monetary policy.”
Outlook for Turkiye’s 2025 Economy
Looking ahead to 2025, Morales projected a gradual easing of monetary policy. With inflation forecasted to reach 21% by the end of 2025, this improvement will necessitate a careful adjustment in monetary strategies.
Fitch expects Turkiye’s economy to grow by 3.5% in 2024 and 2.8% in 2025. This moderate growth supports the rebalancing of inflation expectations, as well as a shift toward a more net-export-driven growth model by 2025.
Fiscal Policy’s Role on Turkiye’s Disinflation
Morales also commented on the impact of fiscal policy on Turkiye’s disinflation process. In 2023, fiscal policy measures, particularly tax adjustments, helped reduce the budget deficit, despite stronger-than-expected domestic demand. However, the full contribution of fiscal policy to inflation control is expected in the coming years.
Morales stated, “We anticipate that improved fiscal policy consistency in 2025 will contribute to the disinflation process, with around 2% fiscal consolidation expected next year.”
Investor Confidence and Policy Stability
Investor confidence will also play a critical role in Turkiye’s economic future. Morales noted that both local and international investors will be looking for further proof that Turkiye’s current policy stance will remain consistent, and the risks of policy reversals will diminish.
Fitch Ratings’ forecast aligns with expectations of sustained improvements in Turkiye’s foreign reserves, predicting they will reach $158 billion by the end of 2024 and rise further to $165 billion by the end of 2025.
By maintaining tight monetary policies and improving inflation expectations, Turkiye’s economic outlook is set to stabilize, with further growth expected in the coming years. Fitch Ratings’ credit upgrade marks a positive step for the country, reflecting international confidence in its evolving economic policies.
Source: Trthaber / Prepared by Irem Yildiz