Fitch Ratings has downgraded Turkey’s sovereign rating by one notch to B with a negative outlook, the rating agency said. said July 8.

Following the change, Fitch Ratings rates Turkey at B/Negative, five notches underneath investment grade. Moody’s Rating Services rates Turkey at B2/Negative, five notches below investment grade, while Standard & Poor’s rates Turkey at B+/Negative, four notches below investment grade.

Further downgrades are in progress.

Fitch expects official annual inflation in Turkey to average 71% in 2022, the highest level of inflation among Fitch-rated sovereigns. The ratings firm said Turkey’s inflation path remained highly uncertain due to heightened risks of backward indexing, rising expectations and further depreciation of the lira as the exchange rate pass-through increased. both in speed and magnitude.

Fitch expects Turkey’s overall policy mix to remain overly accommodative at least until the 2023 elections due to be held in June at the latest.

There is a risk that if depositor confidence weakens or banks’ and corporates’ hitherto resilient access to external financing deteriorates, official international reserves will come under pressure, as a large share of assets in banks’ foreign currency is held at the central bank, according to Fitch.

Earlier this week, Fitch Ratings said in a report that Turkish insurers focused towards one of their most challenging operating environments in the past decade, with earnings and capital adequacy likely to come under severe pressure in 2022-23.

The Effects of Macroeconomic Deterioration, Soaring Inflation, and Continuing Automobile Liability (MTPL) Price Cap Insurance could push some insurers below minimum regulatory solvency levels, forcing them to raise capital or be taken over by more powerful competitors.

Turkish CPI inflation reached over 70% in May and Fitch expected it to remain very high (end 2022: 60%, end 2023: 55%).

Sustained inflation at such high levels will have significant negative implications for insurers, driving up the cost of claims and potentially leading to reserve shortfalls across longer-term lines of business.

It will also erode customers’ disposable income, weakening their ability to buy insurance.