Moody's, the international credit rating agency, has downgraded Turkey's rating from B2 to B3 for the first time in its history. Moody's revised its rating outlook based on the current situation in the balance of payments and foreign currency reserves. The agency explained that increasing pressures on the balance of payments and the risk of further declines in foreign currency reserves were behind the downgrade. It also confirmed that Turkey's current account deficit may exceed previous forecasts by a significant margin. Accordingly, estimates suggest that Turkey's current account deficit this year will approach 6 percent of GDP, tripling expectations prior to the Ukraine crisis.
Moody's noted that "very accommodative" monetary policies, along with rising food and energy costs, have contributed to increased inflation rates in Turkey and a significant depreciation of the currency, which has declined by around 25 percent this year, after falling by 44 percent last year due to unconventional interest rate cuts of 5 percentage points from 19 percent to 14 percent, making it one of the worst-performing currencies in emerging markets. The lira is currently trading at 17.96 lira per dollar, close to its historical low of 18.4 lira, reached on December 20, 2021.
