The downward momentum in deposit interest rates continues

Deposit rate

The latest data in Turkey shows a significant increase in foreign currency deposits when adjusted for parity, while interest rates on Turkish Lira deposits continue to decline.

According to data from the Central Bank of the Republic of Turkey (CBRT), the average deposit interest rate for 1-3 month Turkish Lira deposits has fallen below 30%. In this maturity, where deposits are most prevalent, interest rates had reached 42%, the highest level in 23 years.

The downward trend in deposit interest rates had accelerated due to the macro-prudential measures of the new economic management.

CBRT Governor Hafize Gaye Erkan had drawn attention to this issue in her first inflation report presentation to the public.

Regarding this issue, Erkan had stated, “Before our first MPC decision in June, the policy rate was 8.5%, while the average deposit interest rate had risen above 40%. As part of the June MPC decision, we put the first step of the simplification process into effect in deposits through the security facility application. Following these steps, the interest rate for deposits with a maturity of up to 3 months has decreased by about 12 percentage points to around 30%.”

Erkan had mentioned that the reason for starting the process with deposits was that the banking sector was in the most binding constraint and negatively affecting the functionality and price behavior of markets. She further stated, “Thus, the simplification process in the macro-prudential framework has effectively increased the effectiveness of the policy rate along with the interest rate hike.”

Source Bloomberg HT

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