Turkish banks have raised interest rates on foreign currency deposits by almost 3% as they try to raise hard currency to overcome market shortages amid rising demand fueled by pound losses, banking sources said.
The return on forex deposits was about 0.5% -1% and has risen to 2% -3% as the foreign exchange needs of private and public companies increase, the sources added.
The pound has lost 10% of its value against the dollar this year, most recently due to the Russian invasion of Ukraineafter falling 44% last year.
“Foreign currency deposit rates are close to 3%. It is difficult to find foreign currency in the market,” a Reuters source said. Interest rates have risen to attract more foreign currency deposits, the person added.
Another banking source said that the fall of the pound had led to increased demand for foreign exchange for importers: “The demand for foreign exchange is increasing as import costs increase due to the devaluation of the pound. Companies will need foreign exchange in the next period,” he said.
The central bank’s forex sales to government agencies, including energy importer BOTAS, rose to a record $ 5.37 billion in February, the source added.
More than $ 15 billion of the foreign exchange needs of state-owned financial institutions have been met directly through central bank reserves over the past four months, without entering the market.
The central bank has met the market need for nearly $ 30 billion in foreign exchange since December through its reserves, in addition to direct foreign exchange intervention in 2019-2020, when it sold $ 128 billion to support the pound.
Economists estimate that the bank’s foreign exchange reserves, which have fallen in recent years as it tried to support the pound, fell by $ 1 billion last week from $ 18.2 billion last week.
Its net foreign exchange reserves are deeply negative when one removes outstanding exchanges.
Russia’s invasion of Ukraine also threatens to increase Turkey’s foreign exchange needs, as it threatens to widen the current account balance and stimulate inflation due to rising commodity prices.
Petros Kranias
Source: Capital
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