Türkiye: macro-financial situation

Abstract

Rationale Türkiye is identified annually as a material country for the Spanish and euro area banking systems. Moreover, both are linked to Türkiye by major trade and financial flows. It is therefore important to monitor the country’s macro-financial situation and main weaknesses. Takeaways •The Turkish economy has continued to post very high, albeit slowing, inflation rates since late 2022, and economic activity has slowed, against a background of sizeable external financing needs, foreign currency debt and low international reserves. •Fiscal policy kept the country’s accounts healthy in 2022, although a significant downturn is expected in 2023. In terms of monetary policy, the Central Bank of the Republic of Türkiye cut the policy interest rate again in February, with the real interest rate standing at -35.2% in April. •The banking system remains healthy, although some indicators have worsened. Furthermore, to keep credit growth in check and encourage more widespread use of the lira in the financial system, the macroprudential and regulatory measures introduced in 2021 and 2022 remained in place and were strengthened.