Fitch downgrades Turkey’s debt after central bank chief dismissal

Ratings agency Fitch on Friday downgraded Turkey’s sovereign debt by one notch to ‘BB-’ with a negative outlook, after President Recep Tayyip Erdogan sacked the governor of the central bank.

The firing of Murat Cetinkaya last weekend for failing to follow government instructions “risks damaging already weak domestic confidence,” Fitch said in a statement.

It also could jeopardize foreign investment which the country needs and create “worsening economic outcomes.”

Erdogan has repeatedly railed against high interest rates and called for them to be lowered to stimulate growth.

He once called high rates the “mother and father of all evil.”

Turkey’s main interest rate is 24 percent after the bank under Cetinkaya made an aggressive rate hike of 625 basis points in September 2018, in reaction to a currency crisis in August.

Last month, Erdogan said the rate was “unacceptable,” promising to find a solution as soon as possible.

But Fitch said the firing demonstrates Erdogan will not tolerate the need for a period of lower growth to choke off inflation which has averaged 10.3 percent over the past five years.

“The president has regularly expressed unorthodox views on the relationship between interest rates and inflation, and has indicated the governor was replaced because he did not follow government instruction on interest rates,” Fitch said.

It also “highlights a deterioration in institutional independence and economic policy coherence and credibility.”

The country also continues to run the risk of US economic sanctions triggered by delivery of Russian missile components, the agency said, which could provide another hit to confidence in the economy.