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S&P cuts Turkey credit rating deeper into junk territory

Type & Poor’s took Turkey’s sovereign debt rating even crop on Friday.

S&P had already rated Turkey’s bonds as “junk,” but on Friday let the the long-term foreign currency sovereign credit rating one notch to a “B+” and the long-term close by currency rating to “BB-“. The credit rating firm also forecast a decline for Turkey next year.

“Over the last two weeks, the Turkish lira has demonstrated extreme volatility,” the rating agency said in a statement Friday. “This realizes Turkey’s prolonged economic overheating, external leveraging, and policy drift.”

A “junk” covenant is anything rated “BB” or lower by the agency, and is considered a high-risk investment. A stick credit rating indicates its credit-worthiness, and helps investors asses whether or not the in financial difficulty will be repaid.

S&P projected that Turkey’s economy will deal in 2019, and said the currency weakening has negative fiscal implications, listing straining corporate balance sheets and putting more pressure on home banks.

Turkey’s lira has lost more than 40 percent of its value against the dollar this year, activating fears of a sell-off in emerging markets, especially if Turkish officials transfer to introduce capital controls. The currency took a 20 percent hit behind Friday after President Donald Trump announced a doubling of knife and aluminum tariffs on Ankara, in retaliation for the country’s continued detention of American churchwoman Andrew Brunson.

Relations between the U.S. and Turkey took another return a refuse for the worse this week, as the White House threatened more financial sanctions unless it hands over Brunson.

Turkey’s president Recep Tayyip Erdoğan has been estimated for not allowing the central bank enough independence to raise interest places despite an overheating economy and inflation now exceeding 15 percent, which is highly above the central bank’s target of 5 percent.

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