Key Highlights

  • The lira neared 50 per US dollar in October, a fresh record low, as authorities allowed a controlled depreciation.
  • The central bank cut its key rate by 100 basis points to 36%, its first cut since the Iran war began.
  • Inflation slowed to 29.73% in September, the lowest in nearly five years.
  • Regulators ordered the liquidation of 131 funds holding about ₺936 billion for more than 455,000 investors.

The Turkish lira approached 50 per U.S. dollar in October, hitting a fresh record low, as authorities kept to a controlled pace of depreciation while intervening in the foreign-exchange market to prevent a sharper decline.

The slide continues a pattern in which policymakers allow the currency to weaken gradually in exchange for steadier financial conditions. It also follows the central bank’s decision on Thursday to cut its policy rate, which restarted an easing cycle after months on hold.

The Rate Cut

The Central Bank of the Republic of Turkey cut its one-week repo rate by 100 basis points to 36.00%, in line with expectations. It was the first reduction since the war with Iran began and followed five straight holds. Policymakers cited softer-than-feared inflation, even after energy prices jumped.

Inflation slowed to 29.73% in September from higher levels, with a monthly increase of 1.84%. That was the first reading below 30% since late 2021, after 58 months, Reuters-based reports said. The bank stressed that it remains cautious and is monitoring the effects of geopolitical developments on costs, activity and inflation expectations. Trading Economics forecasts the policy rate to fall to 28% by year-end, though that depends on oil and the lira.

The headline rate may overstate the loosening. The bank has used liquidity management to steer where banks borrow overnight, limiting access to cheap central-bank funding. As a result, the effective overnight rate can stay near the 40% upper end of the rate corridor even with a 36% policy rate.

A Currency Built on Carry

The lira remains exposed to carry-trade positioning, in which investors borrow in lower-yielding currencies to buy higher-yielding Turkish assets. That has supported the currency, but it is vulnerable to a change in global risk appetite. Thursday brought exactly that: a global selloff in technology and AI stocks, oil near $112 a barrel and U.S. Treasury yields around 5.1% all pushed investors toward safer assets.

Turkey is also an energy importer, so higher oil prices widen the current-account deficit and pressure the lira. That is the reason the central bank has described energy as a threat to disinflation.

A Fund-Industry Shock

A separate shock hit the investment-fund sector. Turkey’s Capital Markets Board began liquidating 131 funds run by seven portfolio management companies, a process to be completed within six months. The funds held about ₺936.3 billion ($19.1 billion) and had more than 455,000 investors, Turkiye Today reported. The episode has raised concern about confidence in domestic savings vehicles.

What It Means for Investors

Authorities have prioritized a gradual, managed decline over a sudden devaluation, and the pace of depreciation has been steady. The risk is that a faster fall in the lira would revive inflation and force the central bank to reverse its cuts. For foreign investors, real interest rates remain strongly positive, which is why the carry trade is still attractive, though the return depends on the lira holding to the central bank’s path.

What to Watch

Investors will watch the pace of lira depreciation against the 50 level, the central bank’s next decision and its liquidity measures, October inflation data, oil prices and the knock-on effects of the fund liquidations on retail savings flows. A sharp escalation in the Gulf conflict that pushes oil higher would test the central bank’s easing plan.

Disclaimer: This content is for informational purposes only and does not constitute financial advice or a recommendation to buy, sell, or hold any security, currency or commodity. Prices, probabilities and estimates are from third-party sources, change quickly and may differ by provider. Investors should conduct their own research and consult a licensed financial adviser before making investment decisions.