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Political tensions risk undoing Türkiye's economic gains from its return to orthodox monetary policies, Moody's Ratings warned Thursday, as reported by Bloomberg, saying renewed unrest may rattle investors and complicate central bank operations.
Alexander Perjessy, vice president and senior credit officer at Moody's Investors Service, said at a finance conference in Istanbul that Türkiye's credit profile has improved significantly over the past two and a half years, but momentum has now plateaued.
"Türkiye's credit profile has improved quite significantly over the last two and a half years," Perjessy said, adding, "But credit-positive momentum has now reached a plateau."
Political turbulence in Türkiye has escalated this year, with the main opposition Republican People's Party (CHP) facing intensifying legal investigations against senior officials, including former Istanbul Mayor Ekrem Imamoglu, who was removed from his position as Istanbul Metropolitan Municipality mayor following his arrest in the corruption investigation.
"Political tensions are threatening to reverse some of the gains in macro stability," Perjessy said.
"Political noise, including street protests, has a track record in Türkiye of undermining investor sentiment. That tends to depress the lira and complicate monetary policy by the central bank."
Inflation remains a challenge for the country. Monthly inflation accelerated for the first time in more than a year last month, marking a setback in the central bank's disinflation efforts.
"Domestic demand remains too strong, as seen in buoyant consumer credit growth," Perjessy said.
"Core inflation has been stuck at around 2 percent on a monthly basis for quite some time. This is one of the reasons inflation isn't coming down as fast as the central bank would hope," he added.
"Deflationary momentum has visibly slowed," Perjessy finally noted, adding, "political tensions add to the challenge by threatening macro stability."
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On Thursday, the Central Bank of the Republic of Türkiye (CBRT) continued its easing cycle with a more cautious approach at its October meeting, trimming the size of the rate cut to 100 basis points to bring the policy rate down to 39.5% following elevated upside risks to inflation in September.
This marked the third consecutive reduction by Turkish policymakers and reflects a softer dovish tone, amounting to less than half of September’s 250-basis-point cut. The Turkish market was expecting a 150-basis-point cut in October, according to the latest Survey of Market Participants.
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