Central Bank urges banks to convert forex deposits into Turkish lira

Central Bank urges banks to convert forex deposits into Turkish lira
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New criteria introduced to reduce forex-protected accounts.

The Central Bank of Turkey (CBT) has introduced new criteria by pushing banks to reduce foreign currency-protected deposit (FXPD) accounts and convert them into Turkish lira deposits.

Banks have stopped opening new FXPD accounts via internet banking per the policy. Meanwhile, journalist Fatih Altaylireported that CBT officials told banks to stop increasing FXPDs, renew but not expand foreign currency accounts, and convert as many as possible into lira deposits.

According to Altayli, banks were told that failure to shift deposits into lira could cause higher collateral and reserve requirements.

The moves are aimed at normalizing Turkey's currency composition and shoring up lira deposits after Turks flocked to FXPDs to hedge against soaring inflation and the lira's decline.

Altayli also indicated that the CBT believes that bringing down inflation will be a long process. An official reportedly told him inflation will continue to rise until early 2024 before peaking in the first quarter of next year.

The official said inflation will fall in the second quarter of 2024 before declining rapidly. He cited expected foreign investment from the West and East as reserves rise.

Analysts say the new CBT criteria are the latest unorthodox policy move to maintain financial stability amid an economic crisis while avoiding sharp interest rate hikes.

Forcing banks to convert foreign currency into lira aligns with the government's goal of reversing dollarization. However, whether citizens will move their savings out of FXPDs that protect against a weakening lira remains uncertain.