Turkish Central Bank Targets 60% Lira Deposits By Mid-2023 In BanksDecember 31, 2022
On Friday, the Turkish central bank said that in the next six months, it is planning on lifting the share of lira deposits in the banking system to 60% of all the deposits that are made.
It also said that it would continue to support access to credit through regulations. Currently, lira deposits are about 53% of the total deposits in the banking system.
The Turkish Lira
The central bank released its annual monetary policy report in which it said that it would maintain its medium-term inflation target at 5%, which it has held for quite a while.
The annual inflation in Turkey has also started edging down from 85%, a high of 24 years that it had reached back in October.
The bank said that it would continue to use policies that would help it in increasing the weight of the Turkish lira permanently on both sides of the banking system i.e. assets and liabilities.
A ‘liraization’ policy has been adopted by the central bank because it wants to stabilize the national fiat that has come under pressure because of the interest rate cuts.
However, the monetary authority added that it did not have any exchange rate target level and it would not direct the lira by buying or selling hard currencies.
Inflation in Turkey has been on the rise since the autumn of last year, triggered by an unorthodox cycle of monetary easing that was encouraged by President Tayyip Erdogan for boosting investment and economic growth.
However, it resulted in a historic crash of the Turkish lira the year. Last year, 65% of all the banking system’s deposits were in hard currencies, which reflects volatile and high inflation rates and depreciation of the lira.
2022 saw a number of regulations adopted in the country in order to discourage the use of foreign currencies.
These included lira deposits backed by the state and protected against depreciation. Therefore, last week saw the share of hard currencies drop to 47% of all deposits in the banking system.
Since August, the Turkish lira has steadied as it has been propped up via indirect sales of foreign exchange in the market.
As far as inflation is concerned, it is expected to decline sharply in the next year, with economists predicting that it will come down to 40% by the time the parliamentary and presidential elections in June.
According to the central bank, it is also planning on ensuring a steady increase in the country’s international reserves because this would help support the lira.
Analysts are expecting the central bank to stick to its current policy of 9% until the election, but the aftermath will depend on whether Erdogan is re-elected or not.
A return to rate hikes and orthodox policies has already been promised by the opposition. As far as this year is concerned, the central bank is expecting inflation to be down to 65.2% by the last day.
This would be largely due to its base effects in this month, but predictions have said that it will drop to 69%.