Turkey cut to junk as Moody’s concludes its post-coup review

Bloomberg

Turkey’s sovereign credit rating was cut to junk by Moody’s Investors Service, which concluded a review initiated after an unsuccessful coup attempt on July 15. Moody’s cited rising risks related to Turkey’s external financing needs and a weakening in its credit fundamentals as economic growth slows. The rating was cut to Ba1 from Baa3, leaving Fitch Ratings as the only major ratings company to keep Turkey at investment grade.
“The risk of a sudden, disruptive reversal in foreign capital flows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis has increased,” Moody’s said in an e-mailed statement announcing the decision late Friday. “This slow deterioration in Turkey’s credit profile will continue over the next two to three years and the balance of risks are better captured at a Ba1 rating level.”
With the rating cut, the difficulties Turkey faces in attracting the foreign capital needed to cover its current-account deficit, the fourth largest in the G-20 group of major economies, are likely to be compounded.
The downgrade could drive forced selling of as much as $8.7 billion in Turkish bonds, JPMorgan Chase & Co said in August. Many of the world’s biggest funds require investment-grade ratings from two of the three major ratings companies — Fitch, Moody’s and S&P Global — to consider an asset for investment. The lira had weakened 0.9 percent to 2.9689 by the close of trading at midnight in Istanbul. The currency has lost about 40 percent of its value against the dollar since 2013, when the U.S. Federal Reserve announced it was phasing out its extraordinary monetary stimulus program, raising the prospect of reduced investment flows to emerging markets such as Turkey.
The Moody’s cut came a day after Turkish President Recep Tayyip Erdogan criticized rating companies in an interview with Bloomberg in New York.