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Moody's Investors Service dashed Turkish hopes on November 20 as it announced in an annual review that it will retain its rating of the sovereign one notch below investment grade for the meantime, stressing that it needs time to see the effects of reform.

Despite the agency's clear declarations recently that it would not join Fitch Ratings - which upgraded Turkey to investment grade last month - anticipation had risen among investors that the country could receive a "magic" second investment grade before the end of the year. The internal rules of many of the globe's largest investors require an investment grade rating from two of the three major agencies before they can place their capital.

However, Moody's stuck to its guns to reaffirm its rating of 'Ba1' with a positive outlook. "Turkey's government's financial strength has improved steadily over the past decade, which can be seen across a wide range of financial metrics such as debt/revenue and debt affordability," the agency opined in its annual credit report. However, it says it needs more time to see how things progress.

Moody's had said in the wake of the Fitch upgrade that it stands by the view it issued in August. In that, it said it would consider an upgrade should the government continue to control the country's "soft landing" to reduce external risks. In other words, the agency remains worried about the size of Turkey's current account deficit, and its dependency on the EU's shaky banking sector to fund it.

"Turkey's resilience to economic, financial, and political vulnerabilities has been strengthened considerably in recent years, but the country's susceptibility to event risk is high due to the size of external imbalances," Moody's reiterated. "[G]iven the structural nature of these imbalances it will take time to be fully addressed."

It also added that the country still needs time to allow reform - both long and short term - to take effect. The analysts praised the fact that the government continues to take steps - for instance the improved investment incentive scheme to try to address economic imbalances - but also noted that such action would not filter through immediately.

Looking forward, Moody's was careful to note once more that an upgrade is not done-and-dusted. Rather, it said its assessment of whether Turkey can attain an investment-grade rating "will be driven by the balance between the greatest risks facing the country, particularly vulnerability to balance-of-payment shocks, against the buffers that could help to maintain the country's creditworthiness if those balance-of-payment risks were to crystallize."

Erste analysts write: "We continue to anticipate that Moody's will wait for 2013 to see whether the achievement in terms of external rebalancing and soft landing are preserved, while we also stick with our view that the chance of a rating upgrade from Moody's is high as early as 1H2013."

The Fitch upgrade saw Turkey regain an investment grade rating for the first time in 18 years, endorsing the country's economic transformation. However, the government remains unhappy, and Prime Minister Tayyip Erdogan has been quick to repeat complaints that the country is being treated unfairly.