Turkey’s FX Loan Cap Sparks Industry Alarm

Turkey’s monetary tightening drive has taken a sharper turn after the Central Bank of the Republic of Turkey (CBRT) reduced the monthly growth cap on foreign currency loans from 1 percent to 0.5 percent. The move, introduced as part of efforts to preserve financial stability and control inflation, has triggered strong reactions from the country’s industrial and export sectors.

While policymakers argue that limiting credit expansion is necessary to anchor inflation expectations, business leaders describe the decision as a severe blow to companies already struggling with high borrowing costs. Banking-sector sources suggest the new limit is so restrictive that it effectively signals to lenders to “almost stop issuing foreign currency loans.”

For many exporters, foreign-currency borrowing has become a critical alternative after Turkish lira commercial loan rates surged to record levels. With both channels now constrained, concerns are mounting over access to working capital.

Commercial Loan Rates Climb Above 47 Percent

The tightening cycle accelerated after measures were introduced on January 31. Turkish lira commercial loan rates, which stood at 40.10 percent on January 16, climbed rapidly to 47.13 percent within three weeks.

According to business representatives, the effective borrowing cost exceeds 50 percent once additional fees and banking expenses are included. At these levels, firms argue that profit margins are being erased, leaving little room for reinvestment or expansion.

Export-oriented manufacturers, in particular, rely heavily on credit to finance production cycles, raw material purchases, and logistics. With limited access to affordable funding, industry leaders warn that production capacity may shrink, potentially tightening supply.

Industry Leaders Warn of Supply Suppression

Şeref Fayat, head of the Ready-to-Wear and Apparel Industry Assembly at the Union of Chambers and Commodity Exchanges of Turkey (TOBB), sharply criticized the new cap, calling it a policy that could deepen financial distress in the real economy.

He stated: “Banks’ appetite for foreign currency lending has now declined as well. This could cause companies to fall into even deeper financial trouble. It essentially means trying to control inflation by raising interest rates and suppressing supply. Exporters were turning to foreign currency loans when they could not access Turkish lira financing, but now there is a restriction there too. What are they supposed to do—borrow at 50 percent interest?”

His remarks highlight a broader concern within the manufacturing community: that restricting credit may inadvertently reduce output, which in turn could exert upward pressure on prices rather than easing inflation.

Immediate Impact Reflected in Banking Data

The consequences of the policy adjustment were quickly visible in official figures. Data released by the Banking Regulation and Supervision Agency (BRSA) showed that foreign currency loan balances declined by $348.3 million as of February 6.

Industry representatives interpret the 0.5 percent growth ceiling as effectively shutting off the credit pipeline. Combined with historically high Turkish lira borrowing costs, the result is described by some executives as “a paralysis in access to finance.”

The central debate now centers on whether tighter credit conditions will help tame inflationary pressures or risk constraining production and employment.

Calls to Expand, Not Narrow, Credit Channels

Alican Duran, president of the Cardboard Packaging Manufacturers Association (KASAD), emphasized that exporters have already endured significant strain from exchange-rate pressures over the past two years. He noted estimated losses of 30-40 percent in competitiveness.

Duran said: “Turkish lira interest rates are extremely high. At a time when our profitability has evaporated, it is impossible for industry to bear TL interest rates that are officially around 40 percent but in reality exceed 50 percent. Exporters genuinely need lifeline support. Instead of narrowing the band, it should be widened.”

Business groups argue that even firms with sufficient collateral are struggling to secure loans. They warn that ongoing employment losses and weakening production capacity could accelerate if financing conditions remain tight.