Moody’s upgrades Turkey’s rating on ‘economic resilience’

Turkey’s government bond rating was raised one notch to Ba2 at Moody’s Investors Service, which cited growing confidence in the government’s “financial shock-absorption capacity.”

“The ability of the government and the country more generally to regroup when faced with a very significant economic and financial challenge indicates that Turkey has reached a higher level of resiliency – which is what our ratings ultimately reflect,” Sarah Carlson, an analyst at Moody’s in London, said in an e-mailed report Friday.

Turkish banks endured the global economic crisis without financial aid from the government, unlike the bailout of lenders and tougher industry regulations prompted by the country’s recession in 2001. Slowing inflation enabled the Central Bank to lower the benchmark borrowing rate by 10.25 percentage points, the biggest reduction among the Group of 20 largest economies, helping to ease the downturn.

“The markets had been focusing on rumors of an upgrade by S&P, but then Moody’s snook up on the rails,” Timothy Ash, chief economist for eastern Europe, the Middle East and Africa at Royal Bank of Scotland, said in a note to investors. “A bit disappointing that Moody’s only moved Turkey one notch. Answers on a postcard why Turkey should be rated behind Egypt.”

The Moody’s upgrade is “a testament to the success of the policies we’ve implemented and the performance of our economy,” Deputy Prime Minister Ali Babacan said, according to state-run Anatolia news agency. “It’s important as an indicator that ratings agencies are starting to close the gap between their opinions and the market’s.”

Fitch lifted Turkey two notches to BB+ on Dec. 3, one level above Moody’s rating and one below investment grade. Turkish stocks and bonds gained on Thursday on speculation Standard & Poor’s would raise Turkey. S&P rates Turkey “BB-,” three levels below investment grade, with a “stable” outlook.

Mobius optimistic

Turkey may be rated investment grade in a “longer term horizon,” said Mark Mobius, executive chairman at Templeton Asset Management. The Moody’s upgrade was “not unexpected,” Mobius said in an interview from Singapore. Investment grade status would be helped on by lower interest rates and slower inflation, he said. Turkey’s economy and the country’s banks are “doing quite well,” he said.

Friday’s rating change by Moody’s came three days after Turkey’s Treasury sold $2 billion of 30-year bonds to yield 6.85 percent. The sale was more than three times over-subscribed.

“I was expecting them to be more bullish, especially after what Fitch did,” said Yarkın Cebeci, an economist at JPMorgan Chase, in Istanbul. “It won’t have a huge impact on prices because as far as the market is concerned Turkey is already classed as investment grade.”

Turkish gross domestic product contracted 14.3 percent in the first quarter of last year, the most since quarterly records started in 1987. “Although Turkish growth has contracted very sharply –even more sharply than was seen in its 2001 financial crisis – the resilience of the public finances relative to past such crises has been notable,” Moody’s said.