S&P Downgrades Turkey's Credit Rating Outlook to 'Negative'... "30% Inflation Risk Early Next Year"

by Park Pyunghee

Published 13 Dec.2021 10:40(KST)

Workers affiliated with the Confederation of Progressive Trade Unions of Turkey (DISK) held a protest on the 12th in Istanbul, the capital of Turkey, criticizing the government's economic policies.
[Photo by Reuters]

[Asia Economy Reporter Park Byung-hee] Credit rating agency Standard & Poor's (S&P) has downgraded Turkey's sovereign credit rating outlook to negative and forecasted a peak inflation rate of 30% in early next year.

According to Bloomberg News, on the 10th (local time), S&P lowered Turkey's credit rating outlook and warned of the risk of a future credit rating downgrade. Currently, S&P assigns Turkey a sovereign credit rating of B+, which is four notches below investment grade.

Other credit rating agencies Moody's and Fitch have already downgraded Turkey's credit rating outlook to negative.

S&P pointed out that the sharp depreciation of the Turkish lira and soaring inflation pose risks to Turkey's economy.

The value of the lira has plunged about 30% since the end of October. Despite soaring inflation, the Central Bank of Turkey has continuously lowered its benchmark interest rate.

This is because Turkish President Recep Tayyip Erdogan insists that high interest rates cause high inflation and continues to demand the central bank to cut the benchmark rate.

The Central Bank of Turkey has cut the benchmark interest rate for three consecutive months since September. During this period, Turkey's benchmark interest rate fell from 19% to 15%.

Turkey's consumer price inflation rate has steadily risen, surpassing 20% for the first time in three years in November, recording 21.31%.

S&P expects that the central bank's interest rate cuts and the depreciation of the Turkish lira will increase inflationary pressures, forecasting that the consumer price inflation rate could reach as high as 30% in early next year.