Central Bank determined to boost demand for lira assets: Governor

ANKARA

The Central Bank is determined to increase domestic and international demand for Turkish Lira assets, its governor Hafize Gaye Erkan has said.

The preliminary indicators show that the share of lira assets is starting to increase in domestic and foreign investor portfolios, Erkan said in a speech on Sept. 25.

“The recently announced measures aim to boost the share of Turkish Lira deposits,” she also said.

The Central Bank in late August started to roll back the FX-protected deposit accounts scheme, also known as KKM, ending an implementation that previously stipulated a target for conversion from foreign currency deposits to FX-protected deposits.

Earlier this month, the bank announced additional measures designed to increase the share of Turkish Lira deposits.

According to the instruction sent to local lenders, the targeted monthly rise in the share of lira deposits in total deposits was raised from 2 percent to 2.5 percent.

On Sept. 25, the Central Bank also unveiled new steps, eliminating a previous minimum interest requirement for some KKM accounts. The maximum interest rate was the Central Bank’s policy rate, that is the one-week repo auction rate, which the bank increased by 500 bps to 30 percent last week.

Data from the Banking Regulation and Supervision Agency (BDDK) show that the money in the KMM accounts, which ballooned to 3.4 trillion Turkish Liras on Aug. 18, dropped to 3.3 trillion liras as of Sept. 15.

On Sept. 25, Erkan also said they will resolutely continue to implement the road map to establish disinflation.

Erdoğan’s support for the program

Meanwhile, Vice President Cevdet Yılmaz has reiterated that President Recep Tayyip Erdoğan fully supports the new medium-term economic program.

The new economic program covering 2024-2026 with new targets and forecasts were unveiled in early September.

“The political will behind the program is strong. Moreover, there is a broad social consensus. That is why chances are high that this program could be implemented,” Yılmaz said in an interview with private broadcaster Kanal 7.

The new program has been well received both inside Türkiye and abroad, according to the vice president.

“The World Bank’s recent decision to increase its exposure to Türkiye from $17 billion to $35 billion within three years, positive comments from the Gulf countries, feedback from the meetings from investors, statements from credit rating agencies, assessments from business associations… all these are indications that the medium-term program serves its purpose,” Yılmaz said.

The next important move is to implement the program step by step with the priority being the fight against inflation, he added.

Yılmaz noted that inflation is on the rise “temporarily.”

“We are not expecting the kind of increases [in inflation rate] seen in July and August in the coming months,” he said, adding that the decline in the annual inflation rate is likely to start in mid-2024.