Page 28 - Turkey Outlook 2025

country’s external liabilities are heavy.
As a result, the lira follows a secular depreciation trend, with some retreats during monetary tightening intervals.
The Erdogan administration is still applying a controlled currency regime. The central bank closely follows FX transactions on the interbank money market. It still limits transaction hours.
The government still seizes 30% of export and tourism revenues. The restrictions on the London offshore swap market remain in effect
too.
Since 2018, when the lira entered the first phase of its unprecedented collapse, the lira squeeze on foreigners has been followed by periodically booming lira costs on the London offshore swap market.
Turkish banks are informally ordered to cut the lira supply on the market to prevent foreign traders from shorting lira, particularly when the stress on the local currency is high.
In 2022, Turkey’s capital markets board, SPK, also ordered local banks not to market supranational bonds, namely lira bonds sold by foreign banks, to their customers. These papers are an alternative way to access lira.
Smooth nominal devaluation, real lira appreciation
The regime applies a smooth nominal devaluation and real lira appreciation policy.
In December, it delivered a limited nominal devaluation. The TRY/US dollar rate moved up to the 35s.
The Turks remain relatively relaxed, as sharp moves on the FX markets are not taking place.
In April 2024, following the local elections, Turkey attracted carry trade inflows, amounting so far to about $30bn.
However, since the regime has not let the lira appreciate, nothing much has come into the government’s lira papers.
In 2025, the smooth nominal devaluation and real appreciation policy is expected to remain in effect.
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