S&P Global Ratings: Household confidence in the lira in Turkey remains resilient

Household confidence in the Turkish lira remained resilient throughout the year, but the share of foreign currency deposits in total bank deposits was unchanged at 38.7% as of September compared to the start of the year. The Turkish Central Bank partially reconstituted its foreign exchange reserves due to the resilience of household confidence and decreased foreign exchange demand. While mandatory asset sales caused a stock market correction and the liquidation of approximately $18 billion in funds occurred, the TCMB's liquidity provision and regulatory isolation prevented financial contagion. Fund outflows were directed towards Turkish lira bank deposits rather than foreign currency. Inflation is forecast to average 30.9% this year and 21.7% in 2027, influenced by potential energy price shocks. S&P Global Ratings views the economy as stable, contingent on authorities maintaining tight monetary/wage policies and not further consuming reserves. Economic growth is estimated at 3% this year, expected to accelerate to 3.7% in 2027, with budget deficit widening to nearly 3% of GDP while public debt remains below 30%.

The narrative presents a tension between underlying stability, managed financial interventions, and external economic pressures. Household confidence persisted despite domestic turbulence, which allowed the central bank to manage reserve levels while containing speculative fund movements. The flow of funds into local currency deposits suggests that market anxieties, potentially triggered by geopolitical factors like energy price shocks, were channeled domestically rather than translating into a systemic collapse of currency trust. The assessment that the economy can absorb the energy shock hinges on the continuation of restrictive domestic policy; this sets up an implicit conditionality: stability is conditional upon policy consistency. Furthermore, the divergence between expected growth rates (3% in 2024 vs. 3.7% in 2023) and inflation forecasts suggests that underlying economic momentum may be slowing despite the official "stable" rating. The focus on controlling public debt relative to GDP while allowing a deficit expansion introduces an internal inconsistency regarding fiscal management versus short-term stability maintenance. What is the mechanism by which resilient household sentiment can coexist with macroeconomic indicators suggesting deceleration, and what is the long-term implication of relying on restrictive monetary settings to offset external energy volatility?