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Turkey's Credit Default Swap (CDS) Hits a 5.5-Year Low

The politically stable environment, fostered by the predictable policies implemented by Turkey's government economic management within the framework of combating inflation, is also evident in economic data. Against this backdrop, the country's economy has maintained uninterrupted growth for 20 consecutive quarters, while inflation has been declining year-on-year since May 2024.

In this process, the Central Bank of the Republic of Turkey (CBRT) has cut interest rates, increased total reserves to approximately 180 billion U.S. dollars, and boosted risk appetite in the domestic market.

While these developments have heightened foreign demand for Turkish lira-denominated assets, Turkey's borrowing costs have also decreased during this period. The country's 5-year Credit Default Swap (CDS) has fallen to 240 basis points, the lowest level since February 2020.

Dr. İsmet Demirkol, Founder of Pariterium Consulting, stated in his assessment to AA correspondents that the decline in the U.S. Dollar Index and the testing of the EUR/USD parity above the 1.18 level have also played a role in driving the CDS down to 240 basis points.

Dr. Demirkol noted that following the weakening global demand for the U.S. Dollar, capital inflows have increased, particularly into emerging markets, and this trend has led to the decline in CDS.He further pointed out that the CBRT's move to raise the country's net reserves (excluding swaps) to over 60 billion U.S. dollars has also contributed to the CDS decline, adding:"After the CBRT's total reserves exceeded 180 billion U.S. dollars, expectations of a further appreciation of the USD/TRY exchange rate have diminished, thereby boosting capital inflows. Especially with the increase in tourism revenues so far, the annualized current account balance as of July was reported to be around 18 billion U.S. dollars. As the management of capital inflows continues in a stable manner, the CDS has declined."