Turkish central bank may revert to Albayrak-style policy to boost lira deposits

Turkey’s central bank may introduce unorthodox measures to encourage Turks to deposit cash in liras at banks rather than foreign currency, BloombergHT reported on Thursday.

The central bank is considering changes to the interest rates charged on banks’ required reserves to achieve that goal, the television channel reported on its website.

Central Bank Governor Şahap Kavcıoğlu mentioned the possible plans to representatives of banks this week, BloombergHT said, citing three unidentified ‘senior’ sources.

Turkey’s central bank adjusted banks’ required reserves last year to help bolster the lira as it kept interest rates at below inflation to encourage economic growth. Such unorthodox policies were led by former Treasury and Finance Minister Berat Albayrak, the son-in-law of President Recep Tayyip Erdoğan. Albayrak resigned in November.

The lira dropped to successive record lows against the dollar last year and has continued its downward path in 2021 on concerns about monetary policy.

The lira was trading down 0.8 percent at 8.69 per dollar on Thursday, close to a record low beyond 8.8 per dollar.

Turks have increased their foreign currency savings as the lira declined. Foreign currency deposits in Turkey now represent about 54 percent of total deposits.