Deposit interest rates continue to decline

The downward momentum in deposit rates continues. Average deposit rates have fallen below 30 percent. While the latest data in Turkey show a significant increase in foreign exchange deposits according to parity-adjusted data, it is observed that interest rates in TL deposits continue to decline. According to the Central Bank of the Republic of Turkey (TCMB) data, the average deposit rate in TL deposits with a maturity of 1-3 months has fallen below 30 percent. Interest rates in this maturity, which is the most important for deposits, had reached a 23-year peak of 42 percent. The downward trend in deposit rates accelerated under the influence of the new economic management's macroprudential measures. TCMB Governor Hafize Gaye Erkan had drawn attention to this issue in her first public presentation of the inflation report. Erkan had said the following regarding the issue: "Before our first MPC decision in June, the policy rate was 8.5 percent, while the deposit rate had risen above 40 percent on average. As part of the June MPC decision, in addition to the interest rate hike, we put into effect the first step of the simplification process within the macroprudential framework with the application of securities facility in deposits. Immediately following these steps, the deposit rate with a maturity of up to 3 months decreased by approximately 12 points and reached the level of 30 percent." Erkan stated that the reason for starting the process with deposits was that they were the most binding constraint of the banking sector and negatively affected the functionality and price behavior of the markets, and said, "Thus, the simplification process within the macroprudential framework increased the effectiveness of the policy rate in a balanced manner, in addition to the interest rate hike."