Turkey Said to See Fewer Lira Interventions as Inflation Slows

(Bloomberg) -- A senior Turkish central banker told international investors this week that authorities expect to intervene less in the foreign-exchange market over time, according to people familiar with the discussions.

In meetings in London, Deputy Governor Cevdet Akcay said he expects improving inflation and financial stability metrics will increasingly enable Turkey’s currency regime to become less interventionist, said the people, who spoke on the condition of anonymity so as to discuss private conversations.

Akcay explained that the country had pursued a so-called dirty float of the lira due to some market deficiencies, the people said. Such a system typically involves occasional central bank interventions aimed at adjusting the direction the currency or the pace of its movements.

The central bank declined to comment.

The bank left its benchmark interest rate unchanged for an eighth month last week, while implying a cut could soon be justified due to slowing inflation. Akcay said that the policy easing does not need to be uninterrupted, noting that while the pace may vary, the overall stance will remain very tight, people said.

Akcay added that the lira’s current valuation poses no concerns, while cautioning that real depreciation of the currency could worsen inflation expectations, people said.

Turkey’s economic administration has been pursuing a policy of real appreciation of the lira as part of its inflation-fighting strategy, meaning effectively keeping the currency’s monthly losses below the trailing monthly inflation.

The Turkish lira’s performance this year has solidified its status as a top choice for carry traders, thanks to a benchmark interest rate of 50%, one of the highest among emerging-market currencies. Carry trade is an investment strategy where an investor borrows money in a currency with a low interest rate and invests in another currency that offers a higher rate.

Despite a nominal 15% decline against the U.S. dollar in 2024, the lira has gained in real terms, drawing billions in carry trade inflows, according to Bloomberg Intelligence calculations.

This flow has helped the central bank rebuild foreign exchange reserves, reducing its reliance on veiled interventions through state banks to stabilize the currency.

Under Finance Minister Mehmet Simsek, Turkey has prioritized restoring investor confidence after years of unorthodox policies that pushed foreign funds out of the market. The currency’s relative stability has become a cornerstone of economy policies, with the central bank emphasizing its role in keeping inflation expectations in check.