Dollarisation in Turkey persists even as lira gains

So-called dollarisation in Turkey is persisting even as the embattled lira strengthens against foreign currencies, an analysis of central bank data showed.

Instant-withdrawal lira deposits at Turkish banks declined 1.7 percent to 186.5 billion liras ($30.7 billion) during the week ending Sept. 14, while foreign-currency denominated deposits rose 1.6 percent in value to 240.5 billion liras, or 56 percent of total deposits. The change comes despite the lira climbing about 3.5 percent against the dollar during the week.

Turks are holding more cash in foreign currency after the lira slid by almost 40 percent against the dollar this year, eroding confidence in the currency.

In savings accounts paying interest, the value of foreign currency deposits fell 3.3 percent to 725 billion liras, the central bank said on Thursday. Lira deposits rose 0.4 percent to 782.4 billion liras. The decline in the value of fx deposits was roughly equivalent to the lira’s gains for the week. There was no equivalent increase in the value of lira deposits, suggesting that Turks may be withdrawing cash to pay for daily expenses as their spending power erodes.  

The lira rose 1.1 percent to 6.05 per dollar in Istanbul on Thursday.

Turkish banks are now offering customers interest rates of about 6 percent to place their dollars in deposit accounts as they seek to shore up their finances. The institutions also offer returns of about 25 percent annually for lira deposits, partly to offset the effects of inflation. Consumer price inflation in Turkey stands at 17.9 percent and is set to accelerate further, meaning real returns in liras may total 5 percent or less in the coming months should interest rates remain stable.

Total outstanding lira-denominated loans at Turkish banks fell less than 0.1 percent in the week to 1.497 trillion liras, the central bank data showed. Loan growth so far this year totals 5.95 percent and 11.75 percent over the past 12 months. Growth in lending is grinding to a halt as inflation surges and the economy slows. The government is forecasting 2.3 percent economic growth for 2019 and most analysts are expecting a contraction starting from as early as the third quarter of this year.

The Turkish central bank’s gross foreign currency reserves, excluding gold, fell $1.25 billion to $68.9 billion, the weekly data showed. The reserves have slumped 18 percent this year and by almost a quarter over the past 12 months. The bank has been forced to use its reserves to help finance a current account deficit that reached more than 6 percent of gross domestic product.