According to the analysis published on the Central Bank’s blog page, the increase in FX accounts stemmed from the outflow from the RRR. Moreover, the ‘current account surplus’ in the summer months was cited as another main reason.
In an analysis published on the Central Bank’s blog page, the question “What is behind the increase in FX deposits?” was examined. The article “Deposit Preferences and Developments in Currency-Protected Deposits” written by Central Bank Assistant General Managers Fazilet Çavuşoğlu, Cihan Fırat and Assistant Specialist Erinç Menekşe was published on the Central Bank’s blog page.
According to the Central Bank, after a rapid shift from foreign currency (FX) deposits to TL deposits (driven by high interest rates), the FX deposit balance is rebalancing as the outflow from FX-protected deposits (FXPD) accelerates.
On the other hand, in the analysis made by the bank, the current account surplus in the summer months was cited as one of the reasons behind the increase in foreign currency deposits and it was stated as follows: “In the summer months when the economy runs a current account surplus, companies may seasonally increase their FX deposit accounts. Another important factor driving the increase in FX deposit accounts is the process of exit from the RRR, which continues to accelerate with the policy steps taken.”
The CBRT’s paper notes as follows:
“The recent increase in the amount of foreign currency (FX) deposits has increased interest in the development of Turkish lira (TL) demand by savers. In this article, we analyze the relationship between the increase in FX deposits and the process of reducing the balance of currency-protected deposits (CPD) in light of the data and interpret it in the context of savings preferences. As a result of our analysis, we find that the increase in FX deposits is in line with the accelerating decline in the ERM balance and that the preference for TL in savings continues. With the impact of the tightening steps in March, deposit preferences shifted rapidly towards the Turkish lira in April and May. FX deposit balance declined from USD 210 billion to USD 190 billion in early June. In this period, the share of TL deposits of real and legal entities increased strongly.
In July and August, the increase in the TL share continues for real persons, albeit at a slower pace. This trend is expected to slow down as the TL share approaches historical averages (60 percent). On the other hand, the TL share of legal entities, which has exceeded historical averages (49 percent), is following a stable path.
What is behind the increase in FX deposits?
In an environment where TL preferences continue to strengthen, one of the reasons behind the increase in FX deposits may be the current account surplus in the summer months. During the summer months when the economy runs a current account surplus, companies may seasonally increase their FX deposit accounts.
Another important factor driving the increase in FX deposit accounts is the accelerated exit process from FX deposits due to the policy steps taken. Since April 2024, the decline in FX deposits accelerated as a result of the CBRT’s steps to reduce the supply and demand for FX deposits, along with the increasing demand for TL assets by domestic and foreign residents and improving reserves. The tax regulations introduced by the Ministry of Treasury and Finance for the use of the CPD accounts also supported this process. With the effect of these regulations, the reduction in CPD renewals, which encouraged the reduction in CPD balances, increased the switching to TL and FX at maturity.
This development in FX and TL switching is in line with CBRT expectations and the objectives of the regulations. In the last two months, while the balance of the RRR decreased by more than $14 billion, the amount preferred as FX or gold at maturity was about $4.7.
CPD unwound by USD 14 billion, FX deposits increased by USD 3.3 billion In the last two months. When we analyze the sum, we see that the downward trend continues. In fact, the share of TL deposits in total deposits rose from 48.4 percent to 51.8 percent in the last two months. After a rapid transition from FX deposits to TL deposits, the FX deposit balance is stabilizing with the acceleration of the outflow from the CPD The decline in inflation in the upcoming period will support the increase in the share of TL deposits.”