Türkiye’s credit default swap falls to lowest since May 2018

ISTANBUL

Türkiye’s five-year credit default swap (CDS) fell to 233 basis points, its lowest level since May 2018, due to the economic administration’s policies to combat inflation.

The country’s economic growth continued for 21 consecutive quarters in the third quarter, while annual inflation remained on a downward trajectory, according to recent data.

An interest rate cut and the central bank’s total reserves hitting a record high of $198.4 billion in October boosted risk appetite.

The balance of Currency-Protected Turkish Lira Deposits and Participation Accounts continued to decline, dropping to 22.4 billion Turkish lira ($527.7 million), after falling by 30.3 billion Turkish lira ($713.8 million) in the week of Nov. 21.

The decline in this balance, along with weakening physical gold demand, contributed to the CDS’s drop to its lowest level since May 2018.

At the same time, Türkiye’s current account balance posted a surplus of $1.1 billion in September, extending its positive streak to a third straight month after surpluses of $1.7 billion in July and $5.4 billion in August.

The Turkish Central Bank (TCMB) made some changes to its reserve requirement regulations. The temporary 0% reserve requirement applied to increases in long-term foreign currency liabilities sourced directly from abroad will no longer be extended beyond the end of the year.

The bank also eliminated the differences in reserve requirement ratios between foreign currency and gold deposit accounts.

It also lowered the reserve requirement ratios for long-term foreign currency liabilities outside of deposits.

The liabilities of finance firms to domestic banks, which were included in liabilities subjected to reserve requirements in 2022, were once again excluded from this scheme.

The credit growth restriction period was also extended by one year.