President of Turkey’s Central Bank: We will continue to take steps to maintain financial stability

The Central Bank of the Republic of Turkey (CBRT) published its Financial Stability Report, and CBRT President Fatih Karahan provided an evaluation of the report. Karahan stated that steps to enhance the effectiveness of market mechanisms and maintain macro-financial stability would continue to be taken.

The report emphasizes that measures have been implemented to manage TL liquidity and strengthen monetary transmission, thereby increasing the effectiveness of the main tool, the policy rate. It was also noted that these practices had strengthened the transmission from policy rates to credit and deposit rates, and increased the level of tightness in financial conditions.

Additionally, the current level of deposit rates, compared to actual and expected inflation, made TL financial assets more attractive, contributing to reduced dollarization and encouraging savings over consumption, which has positive effects on inflation and inflation expectations.

Karahan explained that macroprudential measures had been enacted to maintain financial stability, including the removal of the securities maintenance requirement and the gradual exit from the FX-protected deposit scheme. He mentioned that the level of Turkish lira credit rates was contributing to a balancing process in domestic demand, and that growth in foreign currency loans had been included under a growth limit regulation to mitigate potential risks to the financial system.

Furthermore, the level of Turkish lira deposit rates is promoting savings and increasing interest in the Turkish lira. This shift is reflected in the continued decrease in FX-protected accounts and a significant decline in foreign currency deposit accounts since April. Consequently, the share of the Turkish lira in the deposit composition has significantly increased.

Karahan highlighted that the tightening in financial conditions had had a limited impact on the banking system’s asset quality. The banking system’s strong liquidity and capital structure continue to support financial stability. He expressed his hope that the 38th edition of the Financial Stability Report would be beneficial to all readers.