Turkey was cut deeper into junk territory by Fitch Ratings, which cited the nation’s widening current-account deficit, rising inflation and declining economic policy credibility.
The lira slid 0.2 per cent, extending its biggest weekly decline since the global financial crisis, after the ratings company lowered the nation’s long-term sovereign debt rating to BB from BB+ on Friday.
"Economic policy credibility has deteriorated in recent months and initial policy actions following elections in June have heightened uncertainty," Fitch said in a statement. "This environment will make it challenging to engineer a soft landing for the economy."
Turkish assets came under pressure this week after President Recep Tayyip Erdogan appointed his son-in-law Berat Albayrak as the country’s economy chief. Mr Erdogan replaced market-friendly names, stoking unease among investors and eroding confidence in the country’s ability to avoid a potential hard landing in the economy.
The nation’s current-account deficit will widen to 6.1 per cent in 2018 driven by higher fuel prices and increased household consumption, according to Fitch. A depreciating lira should allow the deficit to narrow to 4.1 per cent by 2019, it said. Turkey’s headline inflation jumped to a 15-year high of 15.4 per cent in June, and Fitch forecasts it to stay in double digits through next year.
