ISTANBUL: Turkish banks have raised interest rates on forex deposits to nearly 3% as they seek to collect hard currency to overcome a shortage in the market due to increased demand sparked by the lira’s decline, banking sources said.
The yield on forex deposits had been around 0.5%-1% and has risen to 2%-3% as private and public companies’ foreign currency needs increase, the sources added.
The lira has lost 10% of its value against the dollar this year, most recently over Russia’s invasion of Ukraine, after shedding 44% last year.
Turkish central bank’s net FX reserves rose to $19.80bn
“Foreign currency deposit interest rates have neared 3%. Difficulty is experienced in finding foreign currency in the market,” one source said.
The interest rates were raised to attract more foreign currency deposits, the person added.
Another banking source said the lira’s decline had led to heightened forex demand for importers.
“The forex demand rises as import costs increase due to the lira’s depreciation. Companies are going to need foreign currencies in the period ahead,” the person said.
The central bank’s forex sales to public institutions, including energy importer BOTAS, rose to a record high of $5.37 billion in February, the source added.
More than $15 billion of state economic institutions’ forex needs have been met directly through the central bank’s reserves in the last four months, without entering the market.
The central bank has met the market’s need for nearly $30 billion of forex since December through its reserves, in addition to direct interventions in the forex market in 2019-2020, when it sold $128 billion to support the lira.
Economists calculate that the bank’s forex reserves, which have declined in recent years as it sought to prop up the lira, dropped by $1 billion last week from $18.2 billion a week earlier.
Its net forex reserves are deeply negative when outstanding swaps are deducted.
A lack of foreign inflows has added to the forex shortage. Foreigners’ Turkish holdings have declined sharply in recent years and they sold off $217 million of stocks on the Istanbul stock exchange.
Finance ministry data shows that private and public sectors have foreign debt payments worth $63.8 billion this year, with $23.3 billion of that amount from state companies.
Russia’s invasion of Ukraine also risks raising Turkey’s forex needs, as it threatens to widen the current account and stoke inflation due to rising commodity prices.