Central Bank unveils steps to increase Turkish Lira deposits
ANKARA
The Central Bank has ended targeting conversion from foreign currency deposits to FX-protected Turkish Lira deposits (KKM) in a bid to support the lira time deposits.
The volume of deposits collected under the FX-protected accounts reached 3.36 trillion liras ($124 billion) as of Aug. 11, rising by 75.3 billion liras from a week ago, according to the latest data from the Banking Regulation and Supervision Agency (BDDK).
At the start of the year, depositors held 1.4 trillion liras in FX-protected accounts, rising steadily to surpass the 2 trillion liras-mark in late April.
Budget payments into KKM amounted to 34.5 billion liras in July with total payments reaching 59.5 billion liras in the first seven months of 2023.
“As part of the simplification process, it has been decided to end the implementation that stipulates a target for conversion from foreign currency deposits to FX-protected deposits as well as the securities maintenance and reserve requirement practice based on the Turkish lira share,” the Central Bank said in a statement on Aug. 20.
The regulations are intended to increase the Turkish lira deposits while decreasing FX-protected deposits by ensuring transition from FX-protected accounts to lira deposits, it added.
“The objective is to contribute to strengthening macro financial stability by supporting Turkish lira time deposits.”
The simplification process and the steps regarding the transition from FX-protected deposits to Turkish lira deposits will continue in line with the principles announced by the Monetary Policy Committee (MPC), the bank said.
Rate-setting meeting
Meanwhile, the Central Bank is expected to hike its policy rate once again this week when members of the MPC meet on Aug. 24.
After Hafize Gaye Erkan was appointed as governor in the wake of the May elections, the bank raised the one-week repo rate first from 8.5 percent to 15 percent in June and further up to 17.5 percent last month, a cumulative 900 bps of increase in the key rate in two months.
Markets now expect the Central Bank to raise the policy rate to somewhere between 19 percent to 20 percent.
Finance Minister Mehmet Şimşek last week vowed that tightening will continue.
Between March 2021 and February 2023, the bank gradually slashed the policy rate from 19 percent to 8.5 percent.
Last month, the Central Bank signaled that it would take further steps toward monetary tightening “in a timely and gradual manner until a significant improvement in the inflation outlook is achieved.”
Inflation, however, reversed course last month.
The annual inflation rate increased in July after falling in the previous eight months, rising from 38.2 percent in June to 47.8 percent.