Fitch sees low probability of Turkish swap lines, rate hikes before IMF


Turkey is more likely to hike interest rates steeply than sign a new International Monetary Fund loan accord, Fitch Ratings said.

An IMF deal would be “an absolute last resort,” Douglas Winslow, director of European sovereign ratings at Fitch, said in a webinar on Thursday.

“There is really nothing to indicate that (President Recep Tayyip) Erdogan’s strong opposition has changed,” Winslow said. “Nothing in terms of policy action. That message has been clear.”

Winslow indicated that the chances of Turkey securing alternative forms of financing to help it cope with the impact of the pandemic – namely swap lines with central banks such as the Federal Reserve – were low.

The situation was fluid, due to the nature of the global crisis, making such a possibility difficult to predict, Winslow said. But he added that he was not factoring in that type of support for the country “with any high degree of probability” when looking at Turkey’s rating of BB-.

Winslow said Turkey did however have more room to carry out fiscal stimulus as measures announced so far, amounting to about 2 percent of GDP, were moderate compared with countries that were being similarly affected by the COVID-19 outbreak.

“We definitely think there is more fiscal space than there is monetary policy space,” he said. “Public finances as a whole are still a credit strength for Turkey.”

Winslow said Fitch had conducted a “greater than normal” out of cycle reviews of Turkey’s credit rating, but that, as things stand, its next public review was due to take place in August.

Lindsey Liddell, senior director and head of Turkish bank ratings, said Turkish banks’ credit profiles, already under pressure before the pandemic, were being weighed down by factors including lira depreciation and loan quality.

The Turkish economy was expected to shrink by 2 percent in 2020, Winslow said.



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