Improvements in governance, “more specifically the decisive and increasingly well-established return to orthodox monetary policies,” are yielding the first visible results in reducing the country's major macroeconomic imbalances, the rating agency said.

While inflation and domestic demand have started to moderate, inflationary pressures "are expected to ease significantly in the coming months and into 2025," it noted.

In June, the country's annual inflation rate dropped more than expected to 71.6 per cent from 75.45 per cent in May.

The Turkish central bank is rapidly enhancing the credibility of monetary policy, which in turn is helping to restore confidence in the Turkish lira, Moody’s said.

"Moreover, the tight policy stance is already materially reducing Türkiye's elevated external vulnerability," it said.

"The rating increase was influenced by economic balancing, reduced external financing needs, increased international reserves and the disinflation process," said finance minister Mehmet Simsek.

Moody's also raised the country’s local currency country ceiling to Ba1 from Ba3 and foreign currency ceiling to Ba3 from B2, domestic media outlets reported.

"The three-notch gap between the local-currency ceiling and the sovereign rating reflects the prospect for a further reduction in external imbalances and improving monetary policy effectiveness, as well as a relatively limited government footprint in the economy. The two-notch gap between the foreign-currency and local-currency ceilings takes into account reduced external vulnerability risks," it explained.

However, the level of dollarisation in Turkiye remains high and confidence in the lira has not yet been fully restored, Moody's noted.

It expects consumer inflation to sharply decrease to below 45 per cent by December, helped by the underway slowdown in domestic demand and with appreciation in the real exchange rate.

Fibre2Fashion News Desk (DS)