Turkish lira stable as markets await policy moves

The dollar in the free market started the new week horizontally at ₺32.22. Overnight interest rates, which fell to 47.13% last week, rose to 52.99% after the Central Bank increased mandatory reserves.

Thus, the upward trend in Turkish lira deposit interest rates and the stable outlook in foreign exchange rates are expected to continue.

Following the Turkish central bank’s decision last week to increase mandatory reserves, approximately ₺750 billion of liquidity will be withdrawn from the market; the repercussions of these decisions, especially on deposit interest rates and foreign exchange rates, will be monitored closely in the new week.

With the ongoing relaxation in Turkish lira deposit interest rates for some time, rates offered to those with Turkish lira savings, excluding participation funds, had fallen below 50%. Before the central bank decision, overnight rates had dropped to 47%.

However, with the increase in mandatory reserves, overnight rates rose to 52.99% on Friday. The 6-point increase is expected to also start affecting Turkish lira deposit rates.

Dollar rates on May 27

While the dollar price on May 27 in the interbank market starts the week horizontally at levels around ₺32.22, in exchange offices, the dollar fluctuates in the range of ₺32.02- ₺32.12 for buying and selling.

Euro also started the day with a selling price of ₺34.80.

Economist Tuncay Tursucu stated that the upward movement in deposit interest rates could be supported by the mandatory reserve move, saying: “Sterilizing the lira injected into the market by the central bank while increasing reserves could strengthen Turkish lira.”

Foreigners to look at inflation and interest rates

Tursucu reiterated that significant outflows have been experienced from the KKM, especially in the last two weeks.

“There is an inflow expressed as hot money on the foreign side. Inflows mainly occur in the bond market. Entry of long-term funds may occur after September because they will look at whether there is a decrease beyond the base effect in the CPI. They will see if the subject of an immediate interest rate cut comes up just because inflation has decreased and Türkiye’s credit rating is still below. They may want to see at least 2 more increases there,” he added.

When will swap channels open?

On one hand, attention is turned to the opening of swap channels used by foreign investors to hedge their positions. Tursucu, recalling Finance Minister Simsek’s statement last week that the Turkish lira is still somewhat weak, said that steps could be taken in the swap field over time.

“When this happens, we will be able to say that there is no longer any risk in the Turkish lira. So, we can say that the exchange rate has reached its value freely in the market. Foreigners also need easy access to Turkis lira domestically,” he said.