Turkey's policy shift on track despite slower disinflation, election test awaits, S&P says

Turkey's tight monetary policy and shift away from unorthodox economic measures underpin its sovereign rating, S&P Global said on October 23. Slower disinflation and upcoming elections pose a test to the central bank's commitment to maintaining discipline, according to the rating agency. Karen Vartapetov, S&P Global's director and sovereign lead analyst for Central and Eastern Europe and Turkey, said the country's current BB- sovereign rating with a stable outlook reflects significant progress since 2023. However, he said it was unclear how sustainable the current tight monetary and macroeconomic policy stance would prove as elections approach, scheduled for May 2028 but potentially held a few months early. Higher energy prices and a succession of shocks have slowed progress in bringing down inflation, currently just below 30% annually, Vartapetov said, but a slowdown in domestic demand will allow the central bank to continue focusing on disinflation. The bank cut its key interest rate to 36% on Thursday following lower-than-expected September month-on-month inflation data. Vartapetov said S&P viewed Turkey's investment fund crisis primarily as a governance and supervision issue rather than a broader threat to financial stability.