It had seen its peak in the last 21 years: Why are TL deposit interest rates falling?

The Central Bank of the Republic of Türkiye (CBRT) implemented a tight monetary policy, which led to a significant increase in deposit interest rates. However, due to the abundance of TL liquidity, banks have begun to lower deposit interest rates.

TL LIQUIDITY IS INCREASING IN BANKS

According to a report on NTV; there are specific reasons for the increase in Turkish Lira liquidity. To address these, we can point to the fact that deposits remain the best-yielding instrument, with the decline in loan demand at the top of the list. So much so that even in their declined state, TL deposit rates provide investors with a guaranteed return of more than 40 percent. This means that the amount of TL deposits in banks continues to remain high.

Another development causing the increase in TL liquidity is the exit strategy from the implemented KKM (FX-Protected Deposit scheme). With the steps taken, the economic administration announced that TL-converted FX-Protected Deposit accounts would not be renewed. Looking at this week's data, a KKM outflow of 50 billion TL stands out. It is likely that the money here has also moved into deposits.

THE DECLINE IN THE STOCK MARKET AND THE STABLE COURSE OF FOREIGN EXCHANGE ARE DIRECTING INVESTORS TO DEPOSITS

The pullback in the stock market and the reversal of the IPO frenzy have pushed investors to leave the stock market. The number of investors leaving the stock market has exceeded 1 million. The money leaving the stock market has predominantly gone into deposits again.

The Dollar/TL exchange rate has exceeded 30 TL. However, volatility is quite low compared to previous months. Since the beginning of the year, the rise in the dollar exchange rate has been at the 1.6 percent level. In the last month, the value increase was 3.52 percent. In other words, the exchange rate did not provide a significant rise for the investor either. The partial stability in the exchange rate has once again directed investors toward interest returns.

THE CENTRAL BANK'S STERILIZATION STEPS

The Central Bank has implemented deposit auction steps to clear liquidity. The Central Bank of the Republic of Türkiye opened a TL deposit purchase auction for the first time since 2006. Most recently, the Bank opened a 1-week maturity deposit purchase auction for 25 billion liras on January 9.

However, the abundance of factors directing funds toward TL deposits may also bring about question marks regarding the sufficiency of sterilization steps.

News Source: 12punto