In a significant move to boost the economy, the Central Bank of Turkey has cut its benchmark interest rate by 250 basis points to 45%, marking a continuation of its easing cycle initiated last month. This decision has sparked renewed interest in Turkish money, with foreign investors flocking to local debt markets, drawn by the promise of easing inflation and potential for regional growth.
Recent Developments in Turkish Money
The recent rate cut is part of a broader strategy to end years of soaring prices and a tumbling currency. Turkey’s central bank had previously maintained high interest rates to combat inflation, which peaked at 85% in 2022 and remained high at 75% last year. However, with inflation now easing, the bank has seen an opportunity to stimulate growth.
According to Nick Eisinger, co-head of Emerging Markets with Vanguard, “Turkey is one of the bigger success stories, one of the positive dynamics in our space that we like. The reform story and the macro story is very positive and still has runway to go.”
Foreign Investors Bet on Turkish Money
Foreign investors have been quick to capitalize on the improving economic landscape. Local bonds attracted $1.24 billion of foreign investor cash in the week to January 17, the largest such inflows in two months, bringing the 2025 tally to $1.9 billion. Foreigners now hold more than 10% of government debt, a sharp increase from around 1% in 2022, though still less than half of the 25% prior to the 2018 lira crisis.
Yerlan Syzdykov, global head of emerging markets & co-head of emerging markets fixed income at Amundi, Europe’s largest asset manager, noted, “We like Turkey from a local currency perspective. Easing inflation, which was lower than expected at 44.38% annually in December, coinciding with a fragile balance of payments situation that gave Turkey little wiggle room to allow the lira to slide further, was favourable to investors for now.”
Regional Developments Boost Turkish Money
Recent regional developments, including the ousting of Syrian leader Bashar al-Assad and the Israel-Hamas ceasefire in Gaza, could add to Turkey’s growth momentum. Magda Branet, head of emerging markets and Asian fixed income with AXA, observed, “Everything that’s happened in the Middle East is probably quite positive for Turkey. Turkey will probably be an actor in the reconstruction of the region and in the reconstruction of Ukraine… So on the growth outlook and the fiscal outlook there’s definitely some positive news.”
Challenges Ahead for Turkish Money
Despite the positive outlook, challenges remain. The central bank still faces the task of proving its orthodox pivot will last before it can lure back major developed-market investors. Amundi’s Syzdykov cautioned, “From their perspective, it’s too risky to go into Turkey because of these factors… on the geopolitical side, but also because of the fragility of the institutional space.”
Conclusion
The recent rate cuts and easing inflation have made Turkish money an attractive option for foreign investors. With regional developments potentially adding to Turkey’s growth momentum, the future looks promising. However, the central bank must continue to navigate geopolitical and institutional challenges to sustain this positive trajectory. As the Turkish economy continues to evolve, it remains a key player in the emerging markets landscape.
Key Statistics:
- Interest Rate: 45% as of January 2025[2]
- Inflation Rate: 44.38% annually in December 2024[1]
- Foreign Investment: $1.9 billion in 2025, with foreigners holding more than 10% of government debt[1]
- Economic Growth: Expected to benefit from regional developments and reconstruction efforts[1]
Sources:
- Reuters – “Foreign investors bet on Turkey, drawn by rate cuts, easing inflation”
- Trading Economics – “Turkey Interest Rate”