Jan 23 (Reuters) - Global credit ratings agency Fitch revised Turkey's outlook to "positive" from "stable" on Friday and affirmed its long-term foreign-currency rating at 'BB-', citing a faster-than-expected buildup in foreign exchange reserves that has reduced external vulnerabilities.

This is the first positive action by Fitch since it upgraded Turkey to 'BB-' in September 2024.

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Gross foreign exchange reserves rose to $205 billion in mid-January, up from $155 billion at the end of 2024. Net reserves, excluding swaps, recovered to $78 billion from a low of negative $66 billion in early 2024, driven by lower dollarization and capital inflows, as well as rising gold prices, Fitch said.

"Turkey's strengthened reserves and disciplined policies reflect meaningful progress in reducing economic vulnerabilities," Fitch , opens new tab said in its report.

The decision highlights Turkey's efforts to mitigate past structural weaknesses, including high inflation and external financing pressures. However, political risks and high debt servicing needs remain points of concern.

Turkey's central bank recently delivered a smaller-than-expected 100-basis-point rate cut to 37%, indicating caution in addressing inflation risks amidst pressure on living costs.

Annual inflation dipped to 30.89% in December, slightly below expectations, though food prices still rose 28.31% annually while education and housing costs surged above 49%.

President Tayyip Erdogan defended the government's "comprehensive reforms" to stabilize inflation, while manufacturers warned that tight monetary policies have weighed on production.

Turkey projects inflation to reach 16% by the end of 2026 and decline to 9% by 2027. Economists in a Reuters poll forecast a more modest decline, expecting inflation at 23% by 2026 and a policy rate of 28% by year-end.

https://www.reuters.com/world/middle-east/fitch-upgrades-turkeys-outlook-positive-amid-rising-reserves-economic-reforms-2026-01-23/