Turkish Lira Faces Downward Pressure

Turkey’s Trade Deficit and Lira Risks

In our previous update, we highlighted that Turkey’s underlying trade deficit—excluding gold and energy—has once again reached levels that have historically signaled a potential depreciation of the Lira. Whether the currency faces renewed downward pressure will largely depend on whether incoming capital can cover the expanding current account gap.

A key indicator to monitor is the central bank’s official foreign exchange reserves. A decline in these reserves suggests the central bank is using its Dollar holdings to offset insufficient capital inflows. The more pronounced this drawdown, the greater the risk to the currency’s stability.