The sacking of central bank governor Murat Chetinkaya heightens doubts about the authorities' tolerance during a period of sustained growth and disinflation, which, according to Fitch, are consistent with a rebalancing and economic stabilization. It also highlights the deterioration in institutional independence, coherence and confidence in economic policies, the ratings agency said in a press release on Friday.
“The July 6 firing of the central bank governor could damage already weak domestic confidence (as evidenced by rising dollarization), jeopardize the foreign capital inflows needed to meet Turkey's large external financing needs, and worsen economic performance. This move adds uncertainty about the prospects for structural reforms and public sector financial management, ”Fitch said.
In addition, the agency noted, Turkey continues to run the risk of US sanctions caused by the supply of C-400 missile components from Russia. While Fitch expects any such sanctions to be relatively lenient with minimal direct economic impact, the impact on sentiment could be significant.
The preliminary agreement stipulates that Turkey will receive two S-400 batteries from Russia and then release two more in Turkey.
The United States has repeatedly warned Turkey that it will have to face economic sanctions if it makes a purchase. Washington also said Turkey would not be allowed to participate in the F-35 high-tech fighter program.
The planned date for the revision of Fitch's sovereign rating for Turkey is November 1, 2019, but Fitch believes that developments in the country warrant such a deviation from the schedule.
At the same time, Fitch kept its forecast for Turkey's GDP growth of 1.1% this year and 3.1% growth in 2020, as weaker investment sentiment compensates for stronger monetary policy this year.
