Mehmet Cetingulec writes:  Rating time has come for the Turkish economy. Fitch Ratings was the first to announce its review. Contrary to the expectation that it would downgrade either the country’s credit rating or outlook, the agency kept both unchanged: the “stable” outlook and the BBB-investment grade.

The review, was expected to send the financial markets rallying. But when the markets reopened Oct. 8 after the holiday, the good news from Fitch was overshadowed by Kurdish demonstrators wreaking havoc across the country.  The main index of the Istanbul stock exchange shed 1,400 points in a single day, plunging to a five-month low of 72,943 points. The Turkish lira, which had been expected to gain ground, slid to 2.29 against the dollar, while bond yields reached 9.78%.

Then the Istanbul stock exchange made up for the losses over the Kobani protests, gaining 2,265 points to close the day at 75,208. The dollar slid from 2.29 to 2.25 Turkish lira, but moved back to 2.27 later in the day as the unrest continued. The bond yield fell to 9.48% before closing the day at 9.6%.

While affirming Turkey’s grade, Fitch welcomed “post-presidential election assurances that the current economic team will remain in place … as constructive.” The statement added that structural reforms, a lasting reduction in the current account deficit, a more stable inflation,  higher domestic savings and increased foreign investment could result in positive rating action.

In short, Turkey is walking a tightrope. Fitch’s favorable review prevented the unrest from taking a more serious toll on the markets. Pro-government media hailed Fitch’s decision as a “holiday present,” while the opposition press saw it as the “reward” of parliament’s approval of a government motion for possible Turkish military action in Syria and Iraq and the deployment of foreign forces in Turkey.

Fitch’s decision id not satisfy Economy Minister Nihat Zeybekci, who never misses a chance to slam ratings agencies.  “Turkey’s realities indicate the credit rating should have been much higher,” the minister said.

In sum, the following conclusion can be made: IS has begun to make an impact not only on Turkey’s exports but also on its politics and domestic security. In this climate, the good news from Fitch came as a “remedy” for the markets. But to get a similar good rating from Moody’s in December, Kobani’s shadow over the markets in particular should be removed.

In short, Turkey is walking a tightrope. Fitch’s favorable review prevented the unrest from taking a more serious toll on the markets. Pro-government media hailed Fitch’s decision as a “holiday present,” while the opposition press saw it as the “reward” of parliament’s approval of a government motion for possible Turkish military action in Syria and Iraq and the deployment of foreign forces in Turkey.