2023-08-20 06:31:49
Turkey’s central bank announced on Sunday that it was backing away from a growing and costly plan to protect lira deposits from exchange rate fluctuations, in a new step towards a return to more traditional policies following the shift to higher interest rates, according to Archyde.com.
Turkey’s central bank said it had suspended targets applied to banks to convert a certain amount of foreign currency deposits into lira deposits that are protected from exchange rate fluctuations.
As part of this transformation, the central bank now wants banks to set a new goal of converting protected lira deposits from exchange rate fluctuations into regular deposits in local currency, which will happen to the extent that it discourages companies and individuals from renewing old protected deposits.
A separate decree, published in the Official Gazette, said the central bank had also raised the ratios of reserves that banks must hold for deposits in foreign currencies, a measure that might push customers more towards switching to regular deposits in pounds.
The former government of President Recep Tayyip Erdogan introduced the lira-protected deposit plan in late 2021 to stem a historic decline in the currency’s value that resulted from his unconventional policies of lowering interest rates despite high inflation.
Since then, those deposits have increased to regarding $117 billion, or 3.1 trillion pounds, which constitutes regarding a quarter of total bank deposits. The volume of these deposits increased following the lira fell by regarding 68 percent over the past two years.
To cover the costs of the decline in the value of protected deposits, the central bank paid an estimated 300 billion lira ($11 billion) in June and July when the lira fell once more. The costs for this month were estimated at 350 billion pounds.
The lira stabilized last month and closed last week at 27.02 per dollar, which is the lowest level ever.
After winning a new presidential term in May, Erdogan appointed a new finance minister and a new central bank governor to lead a shift in monetary policy that included raising interest rates by 900 basis points, and the authorities pledged to abandon dozens of previous regulations to curb inflation and reduce the trade deficit.
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