Fitch says Turkey can resist Fed rate hike threat

Credit rating agency Fitch says Turkish economy well prepared for inevitable cash outflows from emerging markets, which expected to happen after Fed raises interest rates

Updated Jul 28, 2015

Good news for Turkey came from the credit rating agency Fitch. The agency said Turkey has the capacity for external rebalancing measures, including its contracting current account deficit. Fitch also stated that the country does not have the volatility it used to have and that there are no risks of “sudden stop” of capital inflows to Turkey.

As the whole world wonders when the US Federal Reserve will hike its near to zero interest rates after nine years, even rumours of a possible rate hike scare international investors and this results in cash outflows from emerging markets.

While the Fed is entering a normalisation process by gradually ending its extraordinary measures to stimulate the US economy, concerns over negative effects in the emerging markets are growing. Since the financial crisis in 2008, emerging markets have been receiving cash flows, sending investors to countries with higher interest rates to achieve better returns. But now, as the Fed is moving towards a rate hike, emerging market borrowers are exiting from those countries.

Based on the latest economic indicators, the Fed has not revealed when the next hike will be. In its April Open Market Committee meeting, the bank pointed to a slower economic growth and labour market in the US on Wednesday, signalling that a rate hike would not be imminent. While the rate hike could come in June, most economists don’t expect it until September or possibly at the end of the year.

TRTWorld and agencies