Turkey risks further losses in its central bank reserves after a $30 billion decline over the past 12 months, adjusted for valuation changes, US investment bank Goldman Sachs warned, CNBC-e reported on Friday.
Interest rate cuts and risks surrounding elections could cause further losses, threatening the country’s economic program, according to an assessment by the bank.
The valuation adjustment strips out changes in the value of assets already held in reserve, such as those caused by movements in gold prices and exchange rates.
Reserves provide a buffer against financial shocks and can be used to support the lira when demand for foreign currency rises.
Turkey’s central bank cut its benchmark interest rate to 36 percent from 37 percent on Thursday after leaving it unchanged at five consecutive meetings. Goldman Sachs had expected no change.
Domestic demand was still weak, but the bank’s activity indicator suggested it was beginning to recover. That recovery, combined with looser fiscal and monetary policies, could limit further progress in reducing underlying inflation.
Loan growth will also come under scrutiny in the months ahead because borrowing tends to accelerate when the central bank lowers interest rates, Goldman Sachs stated.
Further cuts of the same size at successive meetings are not guaranteed, since the central bank plans to determine each move separately, the investment bank added.
Annual inflation fell to 29.73 percent in September from 31.51 percent in August, according to official figures.
The central bank described the underlying inflation trend as slowing but warned that energy costs driven by geopolitical tensions continued to pose a risk. It pledged to maintain policies aimed at curbing inflation until price stability is achieved.
Turkey began reversing years of low interest rates in 2023, adopting policies intended to slow spending and restore confidence after borrowing costs had been kept down despite rising prices.
Presidential and parliamentary elections are scheduled for May 2028, although officials have indicated they could take place a few months earlier, Reuters has reported.
