Decline in inflation expected to spur share of lira deposits, says Central Bank

By Tuba Ongun

Declines in inflation over the next months will further boost the rise in the share of Turkish lira deposits in total, said a post on the Turkish Central Bank's blog on Thursday.

The share of lira deposits in total deposits grew from 48.4% to 51.8% in July-August, said a blog post by researchers and economists working at the bank.

Tightening steps taken in March spurred a shift in preferences towards Turkish lira deposits, it said.

At its March meeting, the Turkish Central Bank surprisingly hiked its policy rate, also known as the one-week repo rate, by 500 basis points to 50% "in response to the deterioration in the inflation outlook.”

While preferences for the Turkish lira are strengthening, FX deposits rose during summer as the current account balance posted a surplus, it highlighted.

The accelerated exit from FX-protected deposit (KKM) accounts due to recent policy measures also helped the rise in FX deposits, it added.

Increased demand for Turkish lira assets, rises in Central Bank reserves, and the bank’s efforts to curb the KKM supply and demand have all made a decline in KKM accounts pick up speed, beginning in April.

Despite the unwinding of $14 billion in KKM balances, FX deposit balances rose by only $3.3 billion in July-August, it noted.

"Following a rapid shift from FX deposits to TRY (lira) deposits, the FX deposit balance is stabilizing amid the accelerated exit from KKMs," it said.