FX-linked deposit and Waking Up to New Unknowns…

FX-linked deposit and Waking Up to New Unknowns…


When the FXD burden was lifted, the CBRT decided to initiate a brand-new operation over the weekend in order to stop printing money all the time. So, this new operation necessitates that provisions, related obligations and liabilities for the FXD deposits, foreign currency and foreign currency-like instruments will increase in banks, because depositors are expected convert their FXD deposits to regular TRY deposits since the Central Bank will set its policy rate to a maximum of 20% and leave the rate hike job to the banks.


This may seem simple, but in actuality, not that simple to implement. Since the weekend, I have been getting calls from confused investors with countless questions. Their biggest fear is a possible termination of the FXDs. Trying to explain that such a fear was unfounded, I told them that if banks do not offer a satisfactory deposit interest rate, there is a possibility that depositors will prefer to buy foreign currency instead of putting their money in banks.


Apparently, the Central Bank, which used to pressure banks to make their customers choose the FXD scheme, is now forcing them to dissuade their customers from the same instrument. Of course, the CBRT administration has changed, but it is the same institution, or rather the same government, that is making the decisions.


As of this morning, bankers have adopted the wait-and-see attitude. The exchange rates have slightly risen, but TRY deposit rates remain the same. As far as I can tell, banks have different approaches when it comes to stop offering FXD deposits.


So far, banks have decided that the interest they will pay to FXD deposit holders shall not exceed the current WACF rate, which would be something between 17% and 20%. So, it looks like the era of “winning whether the exchange rates rise or fall” is coming to an end. Actually, I am not so certain that this interesting instrument will leave us that easily. But I do know that it should be a ‘goner’.


Nevertheless, deterring Turkish people from investing in foreign currency seems almost impossible given the circumstances. So, I think the government should keep its expectations low about this ‘dream’, at least not before they bring stability and a free market economy back.