ISTANBUL — The Turkish lira continues to rank among the world’s most attractive currencies thanks to its high carry returns. However, foreign portfolio managers are warning that an early interest rate cut before inflation is brought under lasting control could pose significant risks to TL positions.

Türkiye’s disinflation program and high-interest-rate policy have kept international investor interest in Turkish lira assets strong. The lira has maintained its global appeal, supported by the carry returns it offers investors.

TL Assets Deliver 11.2% Return

TL-denominated assets have generated a return of approximately 11.2% since the beginning of the year, placing Türkiye fourth globally, behind Brazil, Argentina and Colombia.

Even if markets price in a potential 200-basis-point policy rate cut by the end of the year, real interest rates in Türkiye are still expected to remain well above global standards.

Warning Against an Early September Rate Cut

Representatives of major international financial institutions remain cautious about potential monetary policy easing.

Kieran Curtis, Head of Emerging Markets Local Currency Debt at Aberdeen, said investors remain inclined to maintain their TL carry trade positions given the current balance between returns and volatility.

Meanwhile, Nafez Zouk, Debt Strategist at Aviva Investors, warned that an interest rate cut in September could be a “risky step” if there is not yet evidence of a sustained decline in inflation.

Zouk emphasized that such a decision could negatively affect foreign capital inflows into Türkiye.

The comments highlight the sensitivity of foreign investors to the timing of monetary policy easing, with the sustainability of the disinflation process remaining a key factor in determining the attractiveness of Turkish assets.

Source: Patronlar Dünyası/ Prepared by: İlayda Gök