A trend which has seen Turks' holdings of foreign currency rise by $50 billion over the past five years should continue, bankers said, even after local investors sold currency and gold worth $1.3 billion last week as the lira plunged to a record low. The lira rebounded in morning trade on Friday to stand at 3.9620 against the US currency at 0835 GMT, having slid to a record low of 4.0375 in illiquid trade overnight, well beyond the previous record of 3.98.
In 2016, President Tayyip Erdogan called for Turks to convert their foreign currency deposits into the local currency in a bid to support the lira. Investors sold more than a billion dollars last week and bankers say a similar figure could also be seen this week.
However, central bank data from the past five years, during which the lira has lost 50 percent of its value against the dollar, showed that foreign currency holdings have increased $50 billion over that period. Foreign currency deposits held by local investors fell to $167.8 billion in the week to March 16, from $169.1 billion a week earlier, data from the central bank showed on Thursday.
The economic leadership in Ankara believes the trend of rising deposits should be watched closely due to its potential to "dollarise" the economy, but the almost $170 billion in foreign currency deposits could provide a crucial cushion for the economy, with the central bank's gross reserves at $90 billion. "The trend of depositors saving in foreign currency should be seen as a result of their experience in recent years. Since the central bank started implementing unorthodox policies in late 2010, 2012 has been the only year the lira has firmed," Nomura Economist Inan Demir said.
"In light of this experience, investors are leaning towards foreign currency deposits in order to protect their earnings against the fall in the lira. This doesn't mean they won't sell foreign currencies when the exchange rate rises, but the general trend will be to save more foreign currency," he said. Bankers say the reason individual and institutional locals increase their foreign currency deposits in the long run is the concern that the lira will continue to fall. While some individuals aim to buy at a low rate and sell for higher, some institutional locals target future foreign currency debt payments. "This is Turkey, you don't know what will happen tomorrow. Until now, there were times when saving foreign currency in the short term has angered me, but I never lost in the long-term," said Kemal, a 54-year old food wholesaler.
Kemal said about a quarter of his savings were in foreign currency and that he occasionally lowered this number to around 15 percent, but had no intention of going any lower.
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