Interest rates for deposit accounts expected to rise after new regulation

ANKARA

Local lenders are likely increase the interest rates they offer for deposit accounts after the Central Bank’s move this week to boost the Turkish Lira deposits, according to sources.

Interest rates on deposits may climb toward 50 percent, they said.

The Central Bank this week sent instructions to local lenders according to which it raised from 2 percent to 2.5 percent the targeted monthly rise in the share of lira deposits in total deposits as part of efforts to make lira more attractive.

“Banks will have no other option but hike interest rates on deposits. If the rates climb towards 50 percent, holding foreign currencies will lose their appeal to investors,” the sources said, adding that interest rates at around 50 percent level will also help people shield themselves against inflation.

The annual inflation rate moved up to 58.9 percent in August from 47.8 percent in July.

The interest rates for 3-month term deposits have been rising gradually since early August when they stood at around 28 percent.

According to data from the Central Bank, the interest rates for 3-month deposits rose from 37.59 percent on Sept.1 to 40.87 percent as of Sept. 8.

The Central Bank in August started to roll back the FX-protected deposit account scheme, also known as KKM.

After the bank’s move on KKM, interest rates for deposit accounts had been expected to climb towards 40 to 45 percent. However, this did not really happen as lenders started to offer different rates, depending on the size of the accounts, to deposit holders, who wanted to move their money from KKM to regular deposit accounts.

“After the Central Bank’s instruction this week, people, irrespective of the size of their deposits with lenders, will be able to receive 45 to 50 percent interest rates for their deposits. They will probably not have to negotiate the interest rates with their banks,” the sources said.