A notable move before the interest rate decision: Banks have started to lower Turkish Lira deposit interest rates

After banks met the conversion targets set by the Central Bank for Currency-Protected Deposit (KKM) accounts, they began to lower their TL deposit interest rates.

According to a report by Birol Bozkurt from Dünya; while banking sources state that more than 90 percent of KKM conversions have returned to TL deposits, TL deposit interest rates have started to decline again after a long break, also due to the slowdown in loan demand. According to data announced by the Central Bank, the TL interest rate for 3-month deposits, which was an average of 45.49 percent on October 6, fell to 44.62 percent on October 13.

According to information we obtained from banking sources, TL deposit interest rates at public banks, which were 41 percent last Friday, were pulled down to 38 percent. Banking sources also say that the advantageous interest rates offered for conversions from KKM to TL deposits have also been eliminated.

At private banks, interest rates vary between 20 percent and 45 percent. TL deposit interest rates had risen with the Central Bank's cycle of returning to tight monetary policy.

RAPID INCREASE IN INTEREST RATE POLICY AFTER THE ELECTIONS

Following the elections, with Mehmet Şimşek returning to lead the economy and Hafize Gaye Erkan being appointed as the President of the Central Bank, policy interest rates had experienced a rapid rise from 8.5 percent to 30 percent. As a result, both loan interest rates exceeded 60 percent and TL deposit interest rates approached 50 percent. However, this rise in TL deposits did not last long.

It is a matter of curiosity whether TL deposit interest rates will rise again after the interest rate decision to be announced by the Central Bank on Thursday. Economists expect a 500 basis point interest rate hike from the Central Bank. The Central Bank had increased the monthly conversion target for real person conversion accounts in KKM to time-deposit TL from 5 percent to 10 percent for banks.

With the regulation, the maturity of TL deposits for the transition from KKM to TL deposits was set at a minimum of 32 days, and a 95 percent renewal target was introduced for conversion accounts. The Central Bank also announced a regulation decision that would increase Turkish Lira (TL) deposits and reduce KKM. Accordingly, the reserve requirement ratios applied to foreign currency deposits were increased.

The reserve requirement ratio for demand, notified, and foreign currency accounts with a maturity of up to 1 month became 29 percent. The reserve requirement ratio for foreign currency accounts with a maturity of 3 months, 6 months, and up to 1 year became 25 percent. The reserve requirement ratio for foreign currency accounts with a maturity of 1 year or more became 19 percent. Banking sources say that after these regulations, most banks have met their targets and, with the effect of the decrease in loan demand, have started to lower TL deposit interest rates.

TL DEPOSIT ACCOUNTS ARE ON THE RISE

According to Central Bank data, total deposits in the banking sector (including interbank) increased by 230 billion 663 million 542 thousand liras in the week ending October 13, rising to 14 trillion 23 billion 979 million 155 thousand liras.

In the same period, TL-denominated deposits in banks increased by 2.4 percent to 8 trillion 6 billion 660 million 139 thousand liras, while foreign currency (FX) denominated deposits increased by 1.4 percent to 5 trillion 410 billion 571 million 632 thousand liras. While the total FX deposits in banks stood at 206 billion 110 million dollars last week, 173 billion 163 million dollars of this amount were collected in the accounts of domestic residents.

500 BASIS POINT INTEREST RATE HIKE EXPECTED FROM CBRT

The Monetary Policy Committee of the Central Bank of the Republic of Turkey (CBRT) will meet on Thursday, October 26, under the chairmanship of Central Bank President Hafize Gaye Erkan. The interest rate decision will be announced at 14.00 on the same day. In the MPC meeting held last month, the policy interest rate was increased by 500 basis points from 25.00 percent to 30 percent.

A 500 basis point interest rate hike is expected in the expectation survey prepared with the participation of 19 economists for the CBRT's Monetary Policy Committee (MPC) meeting. According to the survey results, the policy interest rate expectations of economists who foresee an increase between 250 and 500 basis points ranged between 32.50 percent and 35 percent. The median of the economists' year-end policy interest rate expectations was 40 percent.