Turkish Central Bank says expected declines in inflation to increase share of lira deposits

(MENAFN) On Thursday, a blog post by the Turkish Central Bank highlighted that expected declines in inflation over the coming months are likely to further increase the share of Turkish lira deposits within the total deposit base. According to the post, the proportion of lira deposits rose significantly from 48.4 percent to 51.8 percent during July and August. This increase is attributed to recent policy measures aimed at stabilizing the currency and controlling inflation.

The Central Bank's move in March to raise the policy rate—known as the one-week repo rate—by 500 basis points to 50 percent has played a crucial role in this shift. This unexpected hike was implemented to address worsening inflation conditions and has led to a stronger preference for holding deposits in Turkish lira. The post emphasized that these tightening measures have been effective in redirecting deposit preferences towards the lira.

Despite this trend, there was a rise in foreign exchange (FX) deposits over the summer period. This increase in FX deposits was influenced by a current account surplus and the recent policy actions that have accelerated the exit from FX-protected deposit (KKM) accounts. The Central Bank noted that while there was a significant reduction of USD14 billion in KKM balances, FX deposit balances only grew by USD3.3 billion during July and August.

The blog post also observed that while there has been a rapid shift from FX deposits to Turkish lira deposits, the FX deposit balance is now stabilizing. This stabilization follows a period of accelerated withdrawals from KKM accounts and increased demand for Turkish lira assets, which has led to a reduction in KKM account balances starting in April.

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