War Pressure Pushes the Central Bank to Act
Turkey’s deposit and lending rates are climbing sharply as the Central Bank tightens monetary conditions to offset the economic impact of the ongoing war involving the US, Israel, and Iran. By halting weekly repo auctions and effectively raising its funding cost to around 40%, the Bank has significantly reshaped liquidity in the market.
At the same time, liquidity has flipped into a major deficit, exceeding 1 trillion TL. This shortage is forcing banks to compete more aggressively for deposits, pushing rates higher across the board.
Deposit Rates Cross 40% — and Keep Rising
Throughout March, deposit rates steadily increased. What started around 37–38% for standard short-term deposits has now moved beyond 40%, with some banks offering up to 45%—especially to attract new funds.
Even higher-tier deposits are seeing better returns, with rates climbing further depending on maturity and amount. Lending rates have followed the same trend, surpassing 50% in commercial loans.
In short, Turkey has entered a high-interest-rate environment, and banks appear to expect this trend to continue for a while.
Liquidity Crunch Reshapes Banking Strategy
The Central Bank’s efforts to drain excess liquidity—combined with regulatory changes like removing reserve requirement exemptions—have made funding more expensive for banks.
To ease the pressure slightly, the Bank has reintroduced FX-to-TL swap operations, allowing banks to access Turkish lira liquidity in exchange for foreign currency. This move is seen as a stabilizing step, especially during periods of tight funding conditions.
Shift in Investor Behavior: Gold Gains Attention
While there hasn’t been a major surge in foreign currency demand domestically, there is a noticeable shift toward gold.
As gold prices dip, local investors are increasingly moving funds out of TL deposits and money market funds into gold, signaling a cautious stance despite rising interest rates.
Massive FX Sales and Declining Reserves
March also saw heavy intervention in currency markets. The Central Bank sold a total of $44.1 billion in foreign exchange during the month to stabilize the lira.
As a result, gross reserves dropped significantly, and net reserves (excluding swaps) also declined sharply. Falling gold prices added further pressure, reducing reserve levels even more.
What Comes Next?
Market expectations suggest that tight monetary policy will continue, at least in the near term. With liquidity still constrained and inflation risks lingering, high deposit rates are likely to remain a key feature of Turkey’s financial landscape for now.
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