Fitch Turns Positive on Türkiye, Moody’s Holds Steady as Inflation Eases and Reserves Rise

Summary:

Fitch Ratings has upgraded Türkiye’s sovereign rating outlook to positive from stable, citing falling inflation, stronger foreign-currency reserves, and reduced external vulnerabilities. While the country’s long-term foreign-currency rating remains at BB-—three notches below investment grade—the move signals growing confidence in the current policy mix. Moody’s, by contrast, left Türkiye’s rating unchanged at Ba3 with a stable outlook, underscoring a more cautious stance despite improving macro indicators.

Fitch Upgrades Outlook, Keeps Rating at BB-

Fitch Ratings said on Friday that it had revised Türkiye’s sovereign rating outlook to positive from stable, pointing to a continued decline in inflation and a faster-than-expected build-up in foreign-exchange reserves. The agency kept Türkiye’s long-term foreign-currency rating unchanged at BB-, which remains firmly in speculative, or “junk,” territory.

In its statement, Fitch said the outlook change reflected a further reduction in Türkiye’s external vulnerabilities. Key factors cited included stronger reserve accumulation, ongoing macroeconomic tightening, and improved policy coordination. Türkiye last received a full rating upgrade from Fitch in 2024.

Although the rating itself was not raised, the outlook upgrade is widely seen as a signal that a further improvement could follow if macroeconomic stability is sustained.

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Moody’s Maintains Cautious Stance

Moody’s Ratings, meanwhile, completed its periodic review of Türkiye’s credit profile without taking a rating action. The agency affirmed Türkiye’s Ba3 rating and maintained a stable outlook.

Moody’s said the rating is supported by Türkiye’s “large, diversified and dynamic economy” as well as its relatively low government debt burden. However, the agency stopped short of upgrading the outlook, reflecting continued concerns around inflation persistence, policy predictability, and institutional risks.

The divergence between Fitch and Moody’s highlights differing assessments of how durable Türkiye’s recent macroeconomic improvements will be.

Inflation Falls, Rate Cuts Begin

The credit-rating decisions come as Türkiye’s inflation trajectory shows signs of improvement. Annual consumer inflation eased to 30.9% in December, its lowest level in more than two years. Market expectations point to inflation slowing further toward 20% by the end of the year—still above the official target, but consistent with a clear disinflation trend.

Against this backdrop, the Central Bank of the Republic of Türkiye (CBRT) has begun cautiously easing monetary policy. On Thursday, the bank cut its benchmark interest rate by 100 basis points to 37%, while warning that seasonal factors could keep price pressures elevated in the early months of the year.

Fitch’s outlook upgrade appears to reflect confidence that the CBRT will maintain a broadly disciplined approach despite the start of the rate-cutting cycle.

A Long Road Back From Downgrades

Türkiye’s sovereign credit rating has undergone sharp swings over the past decade. The country held investment-grade status at BBB- from October 2013 until early 2017, marking the high point of its credit profile in Fitch’s assessment.

That period was followed by a prolonged downgrade cycle triggered by political uncertainty, unorthodox economic policies, and mounting macroeconomic imbalances. The slide accelerated in 2018 and 2019 amid severe currency depreciation and surging inflation.

By July 2022, Fitch had downgraded Türkiye to “B” with a negative outlook, citing runaway inflation and policy credibility concerns.

Policy Shift Fuels Gradual Recovery

The turning point came in 2024, following a decisive shift toward more orthodox monetary and fiscal policies. In March 2024, Fitch upgraded Türkiye’s rating from B to B+ and assigned a positive outlook, pointing to policy normalization and declining inflation risks.

Six months later, in September 2024, Fitch raised the rating again to BB- while revising the outlook to stable, highlighting improvements in external balances and reserve adequacy.

Throughout 2025, Fitch reaffirmed the BB- rating twice, maintaining the stable outlook until this week’s upgrade to positive. The latest move suggests that the agency sees recent gains as increasingly resilient.

Markets Watch for the Next Step

For investors, Fitch’s outlook upgrade is a constructive signal for Turkish assets, particularly sovereign bonds and local-currency instruments. While Türkiye remains below investment grade, a positive outlook improves the probability of a rating upgrade over the medium term, assuming policy discipline and disinflation continue.

Moody’s decision to hold steady, however, serves as a reminder that rating upgrades are not guaranteed. The pace of inflation decline, the CBRT’s independence, and adherence to fiscal restraint will be critical in shaping future assessments.

With global investors closely watching Türkiye’s policy direction, the contrast between Fitch’s optimism and Moody’s caution underscores the delicate balance Ankara must maintain to secure a full return toward investment-grade status.

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