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TURKEY: Spread on TRY Deposit Rates Sign of Issues Facing Transmission of MonPol

TURKEY
  • In another sign of the problems facing the transmission mechanism of Turkish monetary policy, Ekonomi report that that the difference between interest rates offered on lira deposits has widened significantly among local lenders, with rates on 92-day lira accounts varying between 35% and 52%. Last week, the newspaper reported that excess TRY liquidity created by the CBRT's foreign exchange purchases resulted in interest rates on lira deposits falling below the central bank’s policy rate of 50% at various maturities.
  • Given that the problems posed by excess lira liquidity has hampered the effectiveness of the transmission of policy, the central bank reiterated last week that it will continue to supplement rate decisions with additional macroprudential measures.
  • Most recently, limits were imposed on the total amount of FX-swaps banks can execute with the monetary authority (by capping the total amount of swaps at 0.5% of their daily FX market limits from 3% previously) in a bid to reduce the availability of TRY to local lenders, thereby potentially lifting deposit rates.
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