Fitch's outlook cut on Turkey flags growing economic strain
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Early morning sunlight cuts across residential housing that stretches to the horizon of Istanbul's skyline in Turkey June 13, 2018. REUTERS/Russell Boyce
April 10 (Reuters) - Credit rating agency Fitch revised Turkey's outlook to "stable" from "positive", citing a sharp erosion in foreign exchange reserves due to heavy intervention to support the lira and rising risks from the Iran conflict.
It, however, affirmed Turkey's long-term foreign-currency rating at "BB-".
The agency flagged persistent macroeconomic vulnerabilities, including high inflation, large external financing needs and weak reserve buffers despite earlier improvements.
It added that Turkey's external debt remained high relative to its reserves, while inflation, although easing, continues to run well above that of its peers.
Geopolitical risks have added to the pressure, with Fitch warning that a prolonged conflict involving Iran could push up energy prices, widen the current account deficit and complicate the disinflation process.
"A more protracted conflict would further pressure Turkiye's external finances and inflation, mainly due to its sizeable energy trade deficit," Fitch said in the report.
The ratings agency had upgraded the country's outlook to "positive" in January.
(Reporting by Atharva Singh in Bengaluru; Editing by Anil D'Silva)
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