Turkish central bank’s currency stabilization may cost up to $25B: Analysts

Turkish central bank’s foreign currency reserve sales to curb the depreciation of the lira —which began accelerating on Wednesday— may cost up to $25 billion, according to calculations based on market volume.

On Wednesday, the lira lost as much as 12% of its value against major currencies amid political uncertainty that triggered a surge in foreign currency demand.

At the peak of the volatility, the U.S. dollar climbed to ₺41.1, the euro to ₺44.5870, and the British pound to ₺53.7685, marking all-time highs.

However, the sharp losses quickly narrowed to around 6% after the Central Bank of the Republic of Türkiye (CBRT) intervened in the markets by selling reserves to alleviate pressure on the lira.

According to Reuters, the CBRT sold $10 billion in foreign reserves on March 19 alone, while the London-based Financial Times estimated the figure at $12 billion.

Former CBRT chief economist Professor Hakan Kara also estimated via his X, formerly Twitter, account that the central bank sold approximately $23 billion over the past three days.

Economist Guzem Yilmaz Ertem further stated that losses in reserves accumulated under the 50% interest policy could amount to as much as $25 billion.

After the central bank’s interventions, the U.S. dollar was trading at ₺37.92, the euro at ₺41.091, and the British pound at ₺49.0125 as of Friday’s market close.

Lira-settled forward foreign exchange sales surpass $1 billion

Meanwhile, the CBRT reported that it had conducted lira-settled forward foreign exchange (FX) sales totaling $1.12 billion over the past three days, including $885 million in transactions on Thursday alone.

Lira-settled forward FX contracts are financial instruments that allow businesses and financial institutions to lock in an exchange rate for a future date. These contracts do not involve the actual delivery of foreign currency or lira when they mature. Instead, the difference between the contracted exchange rate and the actual market rate at settlement is calculated and settled in Turkish lira.

If the market rate is higher than the contract rate, the central bank pays the difference in lira; if lower, the bank receives the difference. This hedging mechanism is designed to help companies and financial institutions manage exchange rate risk during periods of volatility.

In a parallel effort to support the lira, overnight interest rates in the interbank market surged by 370 basis points (3.7 percentage points), nearing the upper limit of the central bank’s interest rate corridor. The Turkish lira overnight reference rate (TLREF)—a benchmark used to price various financial instruments and loans—rose from 42.03% at the beginning of the week to 45.72% as of Thursday.

This movement reflects the central bank’s recent decision to raise its primary lending rate by 200 basis points to 46%, which analysts said would likely push overnight funding costs in the interbank market up by 350–400 basis points.

The central bank’s increasing reliance on these instruments is seen as part of a broader strategy to meet elevated demand for foreign currency and relieve pressure on the lira without depleting physical reserves.