Turkey’s central bank records second-biggest ever loss

• Central Bank of Turkey lost $18bn in 2024
• Bank was trying to defend lira
• Also offering high interest rates

The Central Bank of Turkey lost 700 billion lira ($18 billion) last year, its second biggest loss ever after a record 2023.

The loss came as the central bank made efforts to defend the Turkish lira while at the same time offering depositors higher interest rates on the local currency versus other currencies, paving the way for so-called carry trades.

A carry trade is an investment strategy that involves borrowing money in a currency with low interest rates and using it to invest in assets based on a currency with higher interest rates. 

The 2024 loss compared with a record loss the year before of  818 billion lira, Turkiye Today reported, citing central bank data.

“There was no surprise in the 2024 results, as the bank was making payments to depositors through the foreign exchange-protected Turkish lira deposit scheme,” economist Mustafa Sönmez told AGBI.

The scheme, which is being phased out, served to encourage depositors to shift out of foreign currency and into the lira, with losses stemming from when a decline in the value of the lira exceeded the interest rate during the deposit term, and was compensated for by the central bank.

Central banks can create new money when needed, but they have to work for profits like any other business organisation. Like a commercial bank, a central bank earns its profits from the differential between the returns on assets and the costs of liabilities.

Inflation eased for a tenth straight month in March, although there are concerns that persistent political unrest could lead to a reversal of this trend in the coming months. 

• Tensions in trade and politics weigh on Turkish money markets
• Turkish inflation cools but may soon rise again
• Arda Tunca: Inflation and political strife test Turkey’s stability

The consumer price index fell to 38 percent in March, down from 39 percent the previous month, according to data issued by state statistics agency Turkstat last week.

The total assets of the central bank grew to 8.59 trillion lira on December 31, from 6.92 trillion lira a year earlier.