Turkish foreign currency deposits rise to record as lira rally spurned

Turkish residents added to their foreign currency deposits in the first week of 2021, underscoring the challenge faced by the central bank in reversing so-called dollarisation of the economy.

Turks have taken the opportunity to purchase more dollars and euros after hikes to the central bank’s benchmark interest rate sparked a rally in the lira. Foreign investors have led the buying spree.

Banking clients in Turkey deposited an additional $199 million in the week ending Jan. 8, taking total deposits to a record $235.9 billion, Dünya newspaper reported on Thursday, citing central bank data.

The increase was driven by individual retail customers, while companies reduced their holdings, Dünya said. Retail clients added $598 million, increasing the total deposited to $150.8 billion. The amount of foreign currency held by companies fell by $399 million to $85.1 billion, it said. The firms also cut their holdings in the final week of 2020.

The lira hit an all-time low of 8.58 per dollar in the first week of November. It has since rallied to trade at around 7.4 against the U.S. currency. It lost 20 percent of its value last year.

The central bank has said the rate hikes – it has increased the benchmark rate to 17 percent from 8.25 percent in September - will help to increase the attractiveness of the lira as it works to bring down inflation. Annual price increases stood at 14.6 percent in December.

Monetary policymakers want to use lira strength to increase the central bank’s reserves of foreign currency. The reserves became severely depleted after they kept interest rates at below inflation during most of 2020 and then intervened in the currency markets to support the lira.