Turkey’s budget balance fell to -214.54B in January. This was down from 528.14B in the previous period.
The latest figure shows a move from a surplus to a deficit. The change between the two readings was 742.68B.
The sharp reversal in Turkey’s budget from a significant surplus to a -214.54 billion lira deficit is a major warning sign for fiscal discipline. This suggests a massive increase in government spending or a collapse in revenues, putting immediate and severe pressure on the Turkish Lira. We are now expecting the USD/TRY pair, recently trading above 35.00, to test new record highs.
This fiscal loosening directly undermines the Central Bank’s fight against inflation, which the latest data shows is still running at a stubbornly high 68.5% year-over-year. Even with the policy rate holding at 45%, this level of government spending will fuel further price pressures. Consequently, the market may begin pricing in the possibility of another interest rate hike to counteract this.
In the coming weeks, we should position for Lira weakness by acquiring USD/TRY call options. This strategy allows for participation in a potential currency depreciation while clearly defining our maximum risk. The budget figures provide a strong catalyst for a move higher in the currency pair.
The heightened uncertainty also means that implied volatility in the Lira is set to rise. We can trade this directly by purchasing option straddles on USD/TRY, which will profit from a large move in either direction. This is a practical way to capitalize on the instability without betting on the specific direction of the breakout.
When we look back at 2025, the central bank’s aggressive rate hikes were just starting to build credibility in the market. This sudden fiscal expansion threatens to undo that hard-won progress from last year. This deficit spending is reminiscent of previous post-election cycles, which historically led to macroeconomic instability.
We should also be cautious on Turkish equities and consider hedging strategies for the Borsa Istanbul. Buying put options on the BIST 100 index or on major banking stocks can protect portfolios from a downturn. The increased country risk premium will likely weigh heavily on the stock market.
