S&P: Turkey’s Unpredictable Policies Makes it Challenging to Attract Investment

S&P: Turkey’s Unpredictable Policies Makes it Challenging to Attract Investment

Turkey's economic outlook is being clouded by the prospect of dollarization, unpredictable policies, and currency volatility, which makes it challenging to attract investment to the country, according to credit ratings agency Standard & Poors (S&P).

Director of S&P Global Ratings Maxim Rybnikov said investors are deterred by a lack of monetary policy credibility in Turkey, exacerbated by a decision to cut interest rates when inflation was four times the central bank's five percent target.

Turkey's central bank has reduced its benchmark interest rate to 16 percent over the past two months even as inflation accelerated, prompting investors to sell the lira.

The currency hit a record low of 9.85 per dollar in late October after the latest rate hike and President Recep Tayyip Erdogan's replacement of senior central bank officials.

Rybnikov said in an interview with a Turkish newspaper that although the first immediate effect observed is in the exchange rates, the risk that appears to be going forward is towards increased dollarization and further constraining the functioning of monetary policy.

He noted that a weaker lira makes Turkey's exports more competitive, cautioning that it is essential to consider the impact on sectors, including manufacturing, where a weaker lira drives up prices due to reliance