Interest rates on short-term (up to 32-day) deposits climb up again

Following the financial turbulence that began after the March 19 operation targeting Istanbul Mayor Ekrem İmamoğlu—which shook confidence in the Turkish lira (TL)—the Central Bank of Turkey (CBRT) responded with a series of monetary measures that significantly raised deposit interest rates. Initially, these measures pushed up interest rates on short-term (up to 32-day) deposits, but later, the belief that high interest rates would persist led to increases in interest rates on deposits with maturities of up to three months.

Background: A Loss of Confidence in the Lira

The turmoil that began on March 19 triggered capital outflows from TL assets by both domestic and foreign investors. Prior to this, the Central Bank’s policy of maintaining a “strong and stable” lira had been successful in drawing interest to TL-denominated investments. However, the events surrounding March 19 reversed this trend, weakening confidence in TL and increasing demand for foreign currency. As a result, the share of TL deposits declined.

Central Bank’s Response

1. Emergency Interest Rate Hike (March 20):
   The CBRT held an extraordinary Monetary Policy Committee (MPC) meeting and raised the overnight lending rate to stabilize the currency.
2. April MPC Decision:
   The policy rate was increased from 42.5% to 46%.
3. New Macroprudential Measures:
   Introduced on the last business day of April to further increase the cost of foreign exchange and encourage TL usage.

Impact on Deposit Rates

• Initial Reactions:
  The first hikes were seen in 32-day deposit rates, which rose about 0.5 percentage points initially, eventually reaching increases of up to 2 percentage points. Interest on deposits of 100,000 TL for 32 days rose to 45.5%.
• Wider Rate Increases:
  For deposits maturing in 45 days to 3 months, rates initially remained at 40–41%. By early April, these also began to rise. As of early May, interest rates offered by banks rose to:
  • 44.75%–45.25% for 45-day deposits.
  • 47.5%–48% for up to 3-month deposits.
• Total Increases Since March 19:
  • 32-day deposit rates: up by around 5 percentage points.
  • Up to 3-month deposit rates: up by around 8 percentage points.

Outlook: High Interest Rates Expected to Continue

Banking sector insiders note that the upward shift from short-term to longer-term deposit rates reflects expectations that the Central Bank will not reduce policy rates anytime soon. The next MPC meeting is scheduled for June, and a rate-cutting cycle is not expected to begin then. Continued FX demand and recent macroprudential measures suggest that the era of high interest rates will likely persist. Banks are adjusting deposit rates accordingly.