Turkey’s efforts to curb inflation are progressing despite setbacks, but elections due in 2028 could test whether the government sustains its policies, an S&P Global analyst told Reuters on Friday.
Karen Vartapetov, the credit ratings agency’s lead sovereign analyst for Central and Eastern Europe and Turkey, pointed to progress since Ankara changed course in 2023.
Turkey’s BB- rating with a stable outlook reflects that progress. The rating assesses the government’s ability to repay its debts and is below investment grade.
The policy shift reversed years of low interest rates intended to encourage borrowing and growth despite rising inflation. The government of President Recep Tayyip Erdoğan has since pursued higher borrowing costs to slow spending and bring price increases under control.
“Disinflation has been delayed, but we believe not derailed,” Vartapetov told Reuters in an interview conducted Thursday.
Higher energy costs and successive shocks have slowed the decline in inflation, but weaker consumer demand, slower retail sales and reduced credit growth show that higher interest rates are taking effect, he explained.
Turkey’s central bank cut its benchmark interest rate to 36 percent from 37 percent on Thursday after leaving it unchanged at five consecutive meetings.
The bank pledged to maintain policies aimed at curbing inflation until price stability is achieved and warned that energy prices driven by geopolitical tensions continued to threaten its inflation outlook.
Annual consumer inflation fell to 29.73 percent in September from 31.51 percent in August, according to official figures. The decline means prices are rising more slowly, rather than falling.
Presidential and parliamentary elections are scheduled for May 2028, although officials have indicated they could take place a few months earlier. Whether the government maintains its policies as voting approaches is a question S&P is monitoring.
Vartapetov also described Turkey’s investment fund crisis as a failure of governance and supervision rather than a threat to the financial system as a whole.
The crisis erupted in September, prompting regulators to order the liquidation of more than 100 funds over allegations that assets had been manipulated and their values inflated.
Most money withdrawn from the sector went into lira bank deposits rather than foreign currency or gold, while policymakers acted to contain the fallout, he added.
Improvements in supervision will be important to S&P’s assessment of the episode. The agency’s next review of Turkey’s credit rating is scheduled for April 2027.
