Bloomberg: Turkey’s central bank pressures lenders over lira deposits

Bloomberg: Turkey’s central bank pressures lenders over lira deposits
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The state of the economy is a core concern in the upcoming election in Turkey. In an effort to stabilize the lira ahead of the May elections, the central bank held meetings with commercial lenders.

As part of its attempts to protect the lira from further depreciation, Turkey’s central bank had created an emergency savings plan in 2021, promising “a state-guaranteed return for lira deposits that matches or beats any decline against the dollar.”

According to Bloomberg, the plan did not yield the desired results. While Turkish people have “increased their holdings of foreign exchange by as much as $1.7 billion dollars over the past month, inflows into the lira savings plan remained somewhat stable over the same period.”

Senior figures attending discussions between commercial lenders and the central bank have informed Bloomberg reporters that the bank deems “conversion rates to the FX-protected lira deposits program” to be insufficient.

In the meeting, the bank asked lenders to make the deposits program more appealing to the public and to “refrain from using derivatives which officials say allow lira deposits to create new demand for FX.”

The last time Turkey’s central bank had made such a request, interest rates on deposits had further increased.

While a critical election rapidly approaches in Turkey, it is in President Erdogan’s best interest to ensure the stabilization of the lira, as the deepening economic crisis in the country has lost him favor with some among the electorate.