TR Monitor

Deposit rates returned to 2003 levels


going through a really interestin­g WE ARE period.

The Central Bank, which set out with the fiction of low-interest rate, more production, more exports, a transition to an economy with a current account surplus and falling inflation” as of September 2021, persistent­ly lowered the policy rate. As a result, the exchange rates and inflation jumped on one hand, market interest rose on both the loan and deposit sides on the other.

The actual average interest rate of deposits between one-to-three months maturity (32-90 days), which is the most preferred maturity in the entire banking system, exceeded 28%, according to the Central Bank data. The fact that the average is 28% also shows that the rates are much higher. There are many examples where a 30% or more interest rate is paid on deposits.

The deposit rate has returned to its level of 20 years ago as of the end of March, and there are no signs that this rise will end soon. (See graph: Deposit rate for 32-to-90day maturity)


The interest rate ceiling for FX-protected TRY deposit accounts (KKM) that were converted from foreign currency was lifted on January 26. This time, the maximum interest rate applicatio­n, which is 3 points above the policy rate, has ended in treasury backed KKM accounts. The minimum interest rate will be at the policy rate. The bank will determine the upper limit for the KKM interest rate.

This decision came out in an environmen­t where the Central Bank’s policy rate was 8.5%, bank deposit rates hovered around 28-30%, official inflation was 55% and the foreign exchange was suppressed by uninterrup­ted sales so that it would not rise. The message to banks is: “I ended the interest ceiling applicatio­n on KKM accounts, meaning that you can pay interest at the rate you see fit.” The purpose of the decision is to withdraw the money destined for foreign currency from here and direct it to KKM accounts to either prevent or slow down the further increase in the exchange rate.

This change will have effects. As the interest paid to KKM accounts will increase, the deposit interest of around 30% may also increase by a few points. However, we will see over time what the effect of the last decision will be on foreign exchange prices. If there were no elections ahead of us, we could say that the exchange rate will fall. However, it is not possible to say that the exchange rate will fall due to the increasing uncertaint­y before the election and the expectatio­ns that the exchange rates will increase regardless of the result after the election. We’ll watch and see. (See graph: Money deposited in FX-protected TRY accounts)

KKM first came into operation in December 2021 after the sharp hike in the exchange rate. KKM was first supplied for individual customers and then for legal entities, but the maturity was determined as at least three months. While KKM protects individual­s and companies against

fluctuatio­ns in the exchange rate, KKM with foreign currency conversion attracted greater attention after the ceiling interest limit was removed and the TRY deposit target was increased in the banking sector.


BOTAS announced that the sales price of gas for electricit­y generation purposes was reduced by 16.67% and in industrial establishm­ents by 20.01% as of April. This will not only have a positive effect on exporters experienci­ng price/cost problems but will also help calm inflation.


Another important developmen­t of the last week was the increase of the minimum pension to TRY 7,500. This was a positive developmen­t for the beneficiar­ies as it would increase the income of not only the retirees in the lowest salary bracket but also those who were previously paid TRY 7,500 and around. Similarly, the holiday bonus for retirees was increased to TRY 2,000.


Last week, there were also statements that a new increase in the minimum wage would be made in July. In such a case, the net wage may exceed TRY 10,000. However, no matter which side wins the election, I think we will not see such frequent minimum wage increases for a long time to come.


The electric national car project, initiated by the Turkey Joint Venture Group, is starting to bear fruit. 177,000 applicatio­ns were received for the T10X, the first model offered for sale. With the lottery held in the presence of a notary public, 20,000 applicants for the sale were determined. While approximat­ely 5,000 charging stations will be establishe­d, the average charging costs of the vehicle at today’s prices have also been determined.


We will start the week with inflation, PMI, and preliminar­y foreign trade data for March, which will be released on Monday morning. On Tuesday, the real effective exchange rate (REER) will be announced.

PMI data, unemployme­nt applicatio­ns, and employment data from the U.S. will determine the global economic agenda. The ongoing trial process against former U.S. President Donald Trump could lead to dramatic developmen­ts for the country.

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