Turkish President Recep Tayyip Erdogan on June 14 threatened to conduct an “operation” against ratings agency Moody’s Investors Service, less than two weeks after it placed Turkey on review for a downgrade, Turkish media reported.

Erdogan claimed Moody’s was taking steps to defame Turkey to put it in a difficult situation, and said: “It will not succeed.”

His words surprised observers of Turkey’s currency crisis and other economic turmoil given the country’s large external financing requirements, with Guardian financial editor Nils Pratley writing: “Whatever was meant, Erdogan’s threats do not sound wise if Turkey wants to continue to tap capital markets. Even if Moody’s could be silenced (how?), investors will form their own opinions. Those views would surely be more negative.”

Erdogan’s threat could be described as simply heated rhetoric on the campaign trail—Turkey’s parliamentary and presidential elections will take place on June 24 and the polls no longer show Erdogan as a shoo-in for a first-round re-election, while his AKP party risks losing its ruling coalition parliamentary majority—but the president has taken an increasingly hostile stance towards the international ratings agencies in recent months amid the country’s overheating economy and the nosediving of the Turkish lira (TRY).

“God willing, we will conduct an operation against Moody’s after June 24. Moody’s is making unnecessary statements despite the fact that we are not a member of it. What a shame,” state news service Anadolu quoted Erdogan as saying.

When placing Turkey’s rating on review, Moody’s concluded that “the recent erosion in investor confidence in Turkey will continue if not addressed through credible policy actions following the June elections”. It added that “the credibility of Turkey’s policy institutions has been undermined by the ineffectiveness of monetary policy, in part reflecting political interference in the policymaking process”.

“Economic hitman”
Back on March 9, Erdogan launched an attack on Moody’s when it cut Turkey further into junk after concluding that its government seems focused on short-term measures, undermining effective monetary policy and economic reform. He claimed the ratings agencies were preoccupied with trying to drive Turkey into a corner and that the financial markets should not take them seriously. Earlier on the day, in a live interview with state-run TV station TRT, Erdogan’s senior adviser Cemil Ertem said Moody’s decision on Turkey’s sovereign rating lacked rationality and added that the rating agency was acting like an “economic hitman”.

Amid the massive purges that have taken place in the 23 months since Turkey introduced its state of emergency after an attempted coup, market analysts in the country have reportedly been censoring their research to avoid getting fired.

Erdogan, an economic populist, often points the finger at a so-called international interest rates lobby that does not have Turkey’s best interests at heart and unnamed foreign actors and “economic enemies” who are undermining the country’s economy through their actions on the currency and other financial markets.

It is his ‘Erdoganomics’, under which classic monetary policy theory is seen as incorrect in stating that lower interest rates push up inflation, which in the eyes of the ratings agencies is partly responsible for accelerating the stark decline of the TRY, down around 20% against the dollar in the year to date. The markets are also nervous that if re-elected—with greatly strengthened powers under constitutional changes that some critics say will essentially give the president one-man rule—Erdogan will roll back some of the tightening that he has lately assented to from the central bank in the face of huge market pressure.

Such jitters are partly behind the lack of impact the interest rate hikes have had in strengthening the TRY. By around 10:15 local time on June 15 it had weakened to 4.7570 to the dollar from the 4.60 levels seen in morning trading on June 14 as Turkey prepared for an early market close ahead of the Eid al-Fitr religious holiday. The all-time low of 4.9294 occurred on May 23.

Responding to Erdogan’s comments on Moody’s, Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said in a note: “With Moody's rating [on Turkey] already in the balance, hard to see these comments being particularly helpful.”

He added: “Actually I think he was referring to S&P, not Moodys. S&P has always had a tough rating view on Turkey, Moody's have actually, with Fitch, been a little more generous with Turkey. Some years back Turkey stopped the contract with S&P, presumably as they were unhappy with the rating action—but still have the contract with Moodys.” Turkey’s credit rating was cut deeper into junk by S&P Global Ratings on May 1 as the rating agency responded to the risk of its overheating economy experiencing a hard landing. In late January last year, Fitch stripped Turkey of its last investment grade rating.

Turkey has lately remained active in the capital markets, having raised $4bn in two US-dollar bond offerings this year. The dizzying descent of the TRY, meanwhile, is hurting Turkish companies that have borrowed on the international markets, making it more costly in lira terms to repay their debt. Rising bond yields caused by secondary market selling will make it more expensive for Turkey and Turkish corporates when they go for fresh debt issuance.