Goldman Sachs warns Turkey's reserve losses could worsen amid rate cuts and election risks

Goldman Sachs has highlighted a $30 billion erosion in Turkey's central bank reserves after accounting for valuation adjustments such as shifts in gold prices and exchange rates. The bank warns that additional reserve losses are possible if the central bank continues to cut its benchmark interest rate, which was recently reduced from 37 percent to 36 percent, and if political uncertainties surrounding the scheduled elections intensify.

Although domestic demand remains weak, the bank's activity indicator suggests a tentative rebound, but it cautions that more accommodative fiscal and monetary policies could stall progress in lowering underlying inflation. The assessment also points to potential scrutiny of loan growth, as borrowing tends to accelerate when rates fall. Turkey's central bank has pledged to keep tightening measures until price stability is achieved, despite ongoing energy-price risks linked to geopolitical tensions. Elections are slated for May 2028, though officials have hinted they might be moved forward.