Turkey: Foreign currency deposits increase

According to the weekly data of the Central Bank of the Republic of Turkey, total foreign currency deposits increased by 673 million dollars in the week of June 3, adjusted for the parity effect. It increased $356 million over the previous week.

In the week of June 3, an increase was observed in foreign currency deposits. The total size of currency protected deposits, which is also taken into account in terms of its effect on reserves, was 931 billion TRY in the week of 3 June. Last week, 904.1 billion TRY had accumulated in these accounts. The Central Bank of the Republic of Turkey (CBRT) reserves decreased last week. According to the CBRT data, the gross reserve in the week of June 3 was 102.7 billion dollars. Gross reserves were recorded as $102.9 billion in the previous week. A higher decline was recorded in net reserves. Accordingly, CBRT net reserves decreased from $12.2 billion to $10.5 billion last week. Net reserves excluding swaps were negative $52.8 billion in the week of June 3. Net reserves excluding swaps were negative $52.4 billion the previous week.

In the weekly securities statistics of foreigners, it was seen that the shares were entered after 6 weeks. Net share purchase by foreigners in the week of June 3 was $129 million. On the bond side, foreigners made $2 million in net sales that same week. The risk-aversion phenomenon escalated by the Russia-Ukraine war on a global scale and the macroeconomic dynamics of Turkey and the uncertainty of future expectations for the TRY negatively affect the portfolio inflows of foreigners.

We have been observing an increase in the demand for foreign currency and the resulting jump in the exchange rate in the last few days, in the face of the statements of President Mr. Recep Tayyip Erdoğan that excludes higher interest rates. Lira has lost more than 20% of its value since the beginning of the year and shows the most negative performance among emerging markets. The 5-year CDS also hit its highest level since 2008, another sign of investor discomfort. Given the rhetoric that interest rate cuts will continue and the government’s development of other instruments to create lira incentives, a reversal effect in monetary policy does not seem likely under these circumstances.

At the current level, we will continue to follow the trends in the FX-linked product focused on dollarization, reserve cumulation and financial stability. Although the total entry into the system continues, a slowdown has been observed in the dissolution of foreign currency deposits since March. In addition, although a breakdown of FX and TRY accounts has not been published, we consider this distinction as 55% conversion from FX to TRY and 45% direct TRY account opening in line with the statements of the Ministry of Treasury and Finance. The financial dollarization rate is at the level of 56.78% as of the week of June 3, an increase is observed from the rate of 56.66% in the previous week. This rate was 56.1% in the same period of the previous year.

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Hibya Haber Ajansı