S&P downgrades Turkey, maintains negative outlook

Standard & Poor’s on Wednesday downgraded Turkey’s foreign currency denominated debt one notch to BB from BB-plus. The rating agency maintained its negative outlook that means it could further lower the rating again in the medium term.

According to S&P, the downgrade reflects the view that following the failed coup, Turkey’s political landscape has fragmented further and that this will undermine Turkey’s investment environment, growth, and capital inflows into its externally leveraged economy. S&P noted the risks to Turkey’s ability to roll over its external debt have increased.

S&P, in January, cut Poland’s rating from A- (positive) to BB+ (negative) on a relative modest increase in political risks. A failed coup in Turkey was now enough for S&P to pull the trigger. S&P’s move follows Moody’s announcement on Tuesday that it was placing Turkey’s Baa3 rating on watch negative.

Turkey is now at the risk of losing its investment grade status. S&P already rated Turkey sub-investment grade, Fitch is at (BBB–, stable) and Moody’s at (Baa3, watch negative). USDTRY made new highs after S&P’s announcement, hitting 3.0893, with scope for further upside.