Moody’s Upgrades Turkey’s Credit Rating to ‘Ba3’ with Stable Outlook

Moody’s Investors Service on Friday upgraded the country’s credit rating to “Ba3” from “B1”, citing an improved track record in monetary policy, easing inflation, and narrowing macroeconomic imbalances.

The agency also revised Turkey’s outlook to “stable” from “positive”, indicating a more balanced view of the country’s economic trajectory amid ongoing political and external risks.

“The upgrade reflects an increasingly credible track record of policymaking, particularly the central bank’s commitment to a monetary policy framework that sustainably reduces inflationary pressures,” Moody’s said in its statement.

The upgrade comes just one day after the Central Bank of Turkey surprised markets by cutting its key interest rate by 300 basis points to 43%, resuming its monetary easing cycle after a brief pause due to political volatility earlier this year.

Since President Recep Tayyip Erdoğan’s reelection in 2023, Turkey has reversed course from years of unorthodox economic management. The government has embraced more conventional policies, including aggressive interest rate hikes, tighter credit controls, and a return to market-based financial mechanisms.

These efforts appear to be bearing fruit. Official data show that annual inflation dropped to 35% in June 2025, down sharply from 72% a year earlier. Meanwhile, the Turkish lira has shown signs of stabilization, and foreign currency reserves—once severely depleted—have started to recover.

However, the outlook remains tempered by lingering political uncertainties. In March, investor sentiment was rattled after the arrest of Istanbul Mayor Ekrem İmamoğlu, a leading opposition figure and key challenger to Erdoğan. The incident triggered a sudden hike in interest rates and a temporary drain on foreign reserves.

Despite such tensions, international agencies are recognizing Turkey’s shift toward orthodox economic policy. Earlier this month, S&P Global Ratings affirmed Turkey’s credit rating and also maintained a stable outlook.

While the “Ba3” rating marks an improvement, it remains within non-investment grade, commonly referred to as “junk status.” Nevertheless, it signals that Turkey’s creditworthiness is on the mend, potentially boosting investor interest and lowering borrowing costs for the government and private sector.

As Turkey navigates the complexities of economic reform and political headwinds, the coming months will test whether the central bank can maintain its current course without external shocks or policy reversals.