TODAYSZAMAN – Moody’s comes under fire ahead of Turkey rating

Moody’s comes under fire ahead of Turkey ratingTurkeyand#39s economy minister joined a government-led chorus suggesting that the country is being treated unfairly by international rating agencies on Tuesday, as he targeted Moodyand#39s for its possible downgrade of the Turkish sovereign credit rating this week.The ruling Justice and Development Party (AK Party) government has long criticized rating agencies for being politically motivated, adding that Turkey deserves better grades in the ratings given by agencies.

Moodyand#39s will announce its decision on Turkeyand#39s credit rating on July 8 In April of this year, the agency cut the outlook on Turkeyand#39s sovereign rating to negative, citing political turbulence, increased external financing pressure and weaker growth prospects. This had triggered concerns over a possible credit downgrade in the months to follow.

Economy Minister Nihat Zeybeki told a TV program on Tuesday that he expects Moodyand#39s to revise Turkeyand#39s credit rating downwards andldquodespite an improvement in Turkeyand#39s general economic outlookandhellip This [Moodyand#39s downgrade] will be a political decision and they are doing this even though Turkey expects a 4 percent growth this year,andrdquo Zeybeki noted.Turkeyand#39s economic growth beat expectations in the first quarter of 2014 by registering a 43 percent year-on-year expansion in its gross domestic product (GDP), causing global lenders and rating agencies to revise their estimates upwards for Turkish growth this yearIn May of last year, Moodyand#39s upgraded Turkeyand#39s credit rating to BBB-, or investment grade, a move that followed a similar upgrade by Fitch Ratings in November 2012.

Most institutional funds need the endorsement of two of the three largest rating agencies before they invest. Turkey is currently classed as investment grade from two agencies, yet the possibility of returning to junk status in Moodyand#39s rating is not good for long-term prospects for foreign investorsand#39 confidence in the Turkish economy.

Meanwhile, in a separate statement on Tuesday, Zeybeki called for the Central Bank of Turkey to cut interest rates to the levels expected by markets and warned against an upward revision in year-end inflation targets despite higher than expected July inflation dataandquotMarket expectations for the cost of financing at the moment are at a lower level than current interest rates because of the political and economic stability in our country,andquot he said in a statement. andquotIt is an absolute necessityandhellipto ease interest rates towards expectations.

andquotPrime Minister Recep Tayyip ErdoIan, keen to maintain growth ahead of a presidential election on Sunday in which he is the front-runner, has repeatedly called for sharp interest rate cuts, arguing high rates cause high inflation. Data on Monday showed consumer prices rose 045 percent in July, exceeding a 015 percent forecast, for an annual increase of 932 percent, near double the official 5 percent target and undermining the central bankand#39s case for further cuts.

The bank, which has a year-end inflation forecast of 76 percent, trimmed its main one-week repo rate for a third consecutive month in July. Zeybeki said the July inflation data pointed to inflation coming out above market expectations, but argued against revising targets.

andquotWe see the possibility of our year-end inflation targets being revised upwards as unacceptable and unfair to Turkey and the political and economic stability which it has achieved,andquot he said.

SOURCE: Today’s Zaman