Moody’s: Turkey’s Positive Credit Momentum Has Reached a Plateau

Moody’s senior credit officer Alexander Perjessy said Turkey’s recent improvements in credit fundamentals have “plateaued,” warning that political tensions and a slowdown in disinflation could hinder further gains. Speaking in Istanbul, he noted that while the central bank is functioning more effectively, its institutional independence has not materially improved.

Perjessy: “The Central Bank Can Function, But It’s Not More Independent”

Speaking at an investor event in Istanbul, Moody’s Country Risk Group Senior Credit Officer Alexander Perjessy said the Central Bank of the Republic of Turkey (CBRT) has regained operational capability but remains institutionally constrained.

“The CBRT is able to do its job, but as an institution, it has not become more independent,” Perjessy remarked, emphasizing that “the central bank law has not changed.”

According to Perjessy, Turkey’s monetary authorities have demonstrated discipline in recent months, but structural reforms to insulate policy from political interference remain lacking.

Positive Momentum in Credit Rating Has Peaked

On Turkey’s sovereign credit rating, Perjessy said the positive momentum that had supported previous upgrades has now reached a plateau.

“The pace of disinflation is visibly slowing, and political tensions bring the risk of reversing some of the macroeconomic stabilization gains,” he said.

Moody’s currently rates Turkey at B1 with a stable outlook, following an upgrade earlier this year citing improved policy coherence and stronger reserve management. However, Perjessy noted that maintaining the trajectory will depend on sustained institutional strengthening and fiscal restraint.

Political Tensions Could Erode Investor Confidence

Perjessy warned that renewed political friction could undermine the fragile investor confidence built over the past year.

“Political tensions in Turkey have a history of damaging investor sentiment,” he said. “Such developments could complicate the conduct of monetary policy and delay further progress in disinflation.”

He added that Turkish institutions remain “weaker and more exposed to political interference” compared to peers with similar ratings.

Structural Challenges Persist: Weak Reserves, Sticky Inflation

Perjessy highlighted continued vulnerabilities in foreign-exchange reserves and core inflation dynamics, suggesting that “breaking inflation inertia may require more economic pain and slower growth.”

Despite visible progress in balancing external accounts and improving capital inflows, Moody’s sees the overall macro environment as fragile and highly sensitive to policy credibility.

Other Rating Agencies Share a Cautious View

Other global rating agencies have echoed similar caution.
Fitch Ratings, which upgraded Turkey’s outlook to positive earlier this year, recently said the country’s reform process had “strengthened short-term stability but remains vulnerable to policy slippage ahead of elections.” Fitch forecasts headline inflation to remain above 40% through early 2026, noting that monetary policy is “tight but not yet fully restrictive.”

S&P Global Ratings, which revised Turkey’s outlook to stable in May, described the disinflation path as “fragile and heavily dependent on political support for monetary orthodoxy.” The agency warned that any premature rate cuts or renewed fiscal expansion could quickly reverse recent improvements in external balances and investor confidence.

Both agencies praised the CBRT’s recent communication improvements and gradual rebuilding of reserves, but stressed that lasting credibility will depend on institutional independence, not just short-term market calm.

Outlook: Plateau, Not Reversal — For Now

Analysts broadly agree that Turkey’s post-election policy pivot under Finance Minister Mehmet Şimşek and CBRT Governor Fatih Karahan has stabilized markets and reduced external risk premiums. Yet, the next phase — sustaining disinflation while preserving growth — will be far more difficult.

Moody’s Perjessy summarized this delicate balance succinctly:

“Turkey’s macro stabilization has made progress, but the next steps require stronger institutions, not just better policy execution.”

Unless Ankara deepens reform and allows greater policy autonomy, rating agencies warn that the current plateau could turn into stagnation — or even reversal — in the coming year.