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Turkish Lira Under Pressure: Fragile Stability Amid Record Reserve Drop and Political Tensions
The Turkish lira remained relatively stable during Wednesday's trading session, holding at 38.77 lira per US dollar with no significant change. The currency slipped 0.4% against the euro to 43.58 lira per euro, while the price of gold in Turkey fell to 4,032 lira per gram, marking a 0.5% daily drop.
Foreign Exchange Reserves Plunge by $15 Billion
Official data revealed that Turkey’s foreign exchange reserves dropped by $15 billion in March — the steepest monthly decline since the 2023 presidential elections. The plunge reflects growing market concerns, especially following the imprisonment of Ekrem İmamoğlu, a key opposition figure seen as a strong challenger to President Recep Tayyip Erdoğan.
Widening Current Account Deficit and Investor Caution
According to the Central Bank of Turkey, the country posted a current account deficit of $4.1 billion in March, compared to a revised $4.3 billion deficit in February. The persistent shortfall underlines ongoing pressure on the Turkish economy and weakening foreign capital inflows.
Massive Interventions and Rate Hikes to 49%
In a bid to halt the decline of the Turkish lira, Turkish monetary authorities spent billions of dollars from their reserves. Additionally, the Central Bank of Turkey raised interest rates in Turkey twice, pushing the benchmark rate to 49%. Extra measures were introduced to curb dollar demand, including increasing the cost for banks to hold foreign currency-denominated assets.
Inflation Keeps Economic Pressure High
Despite the aggressive rate hikes, inflation in Turkey remains at troubling levels — reaching 37.86% year-on-year. The ongoing rise in prices continues to erode Turkish consumers’ purchasing power and casts doubt on the effectiveness of conventional monetary tools, especially with growing reliance on short-term emergency interventions.
Central Bank Seeks to Rebuild Reserves
Central Bank Governor Fatih Karahan recently stated that the bank aims to rebuild its foreign reserves “as much as possible.” New regulations introduced in April aim to reduce demand for foreign currencies and strengthen market confidence in the lira.
