Standard & Poor's on Wednesday raised Turkey's sovereign credit rating to BB+ from BB, linking it to slowly rebalancing economy and progress made in solving the Kurdish problem.
"The Turkish economy appears to be slowly rebalancing, without undermining its relatively strong fiscal performance," the rating agency said in a statement.
"Turkey's floating exchange rate regime, prudential limits on foreign-exchange lending, and deepening local currency capital markets make the economy fairly resilient to potential shifts in capital inflows," it added.
"We are therefore raising our long-term foreign currency sovereign credit rating on Turkey to 'BB+'. The outlook is stable."
Turkey's Finance Minister Mehmet Simsek welcomed the upgrade as "encouraging" and he said: "We deserve a higher credit rating," in remarks carried by the private NTV broadcaster.
The upgrade also reflected progress made on resolving the Kurdish issue, according to the S&P.
Turkey has entered a historic ceasefire process with the outlawed Kurdistan Workers' Party (PKK) after jailed Kurdish rebel leader Abdullah Ocalan called for his fighters last week to lay down arms and withdraw from Turkish territory.
The move capped months of clandestine talks between Ocalan and Turkey's secret service with an ultimate goal of ending the three decades of violence which has cost some 45,000 lives, mostly Kurds.