Traders at the Istanbul Stock Exchange. The Fitch downgrade has put additional pressure on Turkey. Image Credit: Bloomberg

New York: Turkey’s credit rating was cut deeper into junk territory by Fitch Ratings, days after the dismissal of central bank governor Murat Cetinkaya. Fitch reduced the nation’s long-term foreign currency debt rating to BB-, three notches below investment grade and on par with Brazil, Greece and Bangladesh.

Fitch’s new rating is a step above where the nation is ranked by Moody’s Investors Service and S&P Global Ratings. The ratings company warned of deteriorating institutional independence and economic policy credibility after President Recep Tayyip Erdogan unexpectedly removed Cetinkaya as his central bank chief last week. “Less predictable decision-making comes in an environment where checks and balances have been eroded, and there has been a concentration of powers in the presidency,” Fitch analyst Douglas Winslow wrote in a statement.

The downgrade puts additional pressure on Turkey, which already is bracing for the fallout from its purchase of a Russian missile-defence system. The US has threatened to punish Erdogan’s government over the purchase, which it says puts at risk the Pentagon’s costliest programme, the F-35 fighter jet.

The lira’s reaction Friday to news of the delivery of the first Russian missile components was somewhat muted. It fell by as much as 1.9 per cent, but that’s not extraordinary for a currency that weakened by more than that as recently as July 8.

“While Fitch expects any such sanctions would be of a relatively mild form with minimal direct economic effect, the impact on sentiment could be significant,” Winslow said.