Turkish lenders tumbled in Istanbul trading on Monday, following the central bank taking its first step to curb a deposit tool put in place in late 2021 to support the currency. Bonds rallied.
(Bloomberg) — Turkish lenders tumbled in Istanbul trading on Monday, following the central bank taking its first step to curb a deposit tool put in place in late 2021 to support the currency. Bonds rallied.
The Borsa Istanbul Banks Index, which tracks the shares of Turkey’s listed lenders, fell as much as 5.4% on Monday and was trading 3.5% lower as of 3:19pm in Istanbul to extend Friday’s 4.6% decline. Akbank TAS retreated as much as 6.7%, while Yapi Kredi Bankasi AS fell as much as 5.5%, and Turkiye Is Bankasi AS by up to 4.8%.
The lira was down 0.2% to 27.1644 per dollar. The yield on Turkey’s 10-year government bonds fell 95 basis points to 21.10%, the biggest drop since May.
Via a regulation introduced over the weekend, the central bank aims to reduce Turks’ reliance on FX-linked deposit accounts and compel banks that fail to meet specific conversion targets into regular lira accounts to purchase additional government bonds.
MORE: Lira Lifesaver Became $124 Billion Gamble That Now Haunts Turkey
The monetary authority also boosted the reserve requirement ratios for short-term FX deposits, which will force banks to park more foreign currency at the regulator.
The decision is expected to “increase Turkish lira deposit rates substantially, making them more attractive, while FX-protected lira deposit rates may decline sharply, reducing the scheme’s appeal,” Istanbul-based Oyak Securities wrote in a note. “The impact on foreign currency demand hinges on the lira deposit rates. Loan interest rates are likely to rise notably,” it said.
The change follows a pivot by Turkish President Recep Tayyip Erdogan from his unorthodox views on inflation and interest rates after winning a crucial election in May.
He appointed former Merrill Lynch strategist Mehmet Simsek as finance minister and Hafize Gaye Erkan, a former First Republic Bank co-head, as governor of the central bank, which raised interest rates for the first time in over two years in June. The benchmark rate is expected to rise again to 20% from 17.5% on Aug. 24, according to a Bloomberg survey.
–With assistance from Taylan Bilgic.
(Updates numbers throughout, adds chart)
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