December 3 (SeeNews) - The impact on Turkey's economy from a potential tapering of the U.S. government's quantitative easing (QE) programme will likely be limited and short-term thanks to existing buffers, Moody's Investors Service said.
A range of buffers have been built up in Turkey's economy since the recession in 2009, the ratings agency said in a special comment on Monday.
Moody's also said in the statement:
"Specifically, Moody's report analyzes the impact of QE tapering on the Turkish sovereign (rated Baa3 stable), the country's banks and corporates, and Turkish covered bonds. The new report, entitled "QE Tapering & Turkey: Impact on Various Sectors of Turkish Economy Will Likely be Limited and Short-Lived Given Existing Buffers", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
If and when the US Federal Reserve begins QE tapering, Moody's would expect Turkey to face medium-term challenges in meeting its current account financing needs. However, the sovereign's balance sheet and its economy possess sufficient buffers to withstand likely medium-term challenges linked to meeting its own financing needs in a QE tapering scenario. This is because a range of tools introduced since the 2009 recession have strengthened Turkey's ability to withstand volatility in capital flows.
Turkish banks will be able to cope with challenges arising from tighter funding conditions that are likely to result from QE tapering. Despite a somewhat greater reliance on foreign market funding since 2009, and the resulting increase in the Turkish banking system's vulnerability to potentially volatile wholesale market conditions, Moody's considers the system's likely exposure to the effects of QE tapering to be moderate and its liquidity resources to be sufficient.
QE tapering will have a moderately negative impact on Turkish corporates in light of a number of vulnerabilities stemming from corporates' dependency on bank funding, mostly with short maturities, in foreign currencies and at floating interest rates.
Turkish covered bonds will be more resilient to the effects of QE tapering than the above sectors. The sector's legislative framework and market practice offer investors credit protection against potential increases in non-performing loans and declines in property values."