(Bloomberg) -- Several of Turkey’s largest private banks will boost the interest rates they pay on customer deposits next week, according to people with direct knowledge of their plans.
At least six banks are looking to begin raising their deposit rates gradually from Monday, the people said, asking not to be identified discussing internal business strategy. Managers are taking action now because they see a lower probability that they’ll face a backlash from authorities, they said.
The banks had been told not to compete too aggressively against each other to attract lira deposits, guidance that was meant to keep borrowing costs from surging in the run-up to municipal elections on March 31.
The increase could provide some support for the lira, the world’s worst-performing major currency after the Argentine peso this year, losing 11 percent of its against the dollar. Declines have been driven by geopolitical risks and ongoing tensions with the U.S., uncertainty over whether election results in Istanbul will be overturned in favor of the ruling party, and volatility in the central bank’s foreign exchange reserves.
Amid those tensions, Turkish residents have been converting their savings into hard currency in droves, encouraged by an inflation rate at four times the official target of five percent, and suppressed deposit rates that barely delivered a real return. The total amount of foreign-exchange deposits in the Turkish banking system grew by 20 percent over the past seven months to a record high of $182 billion in March.
Weighted average interest rates on lira deposits rose by more than 1 percentage point since the beginning of this month to over 21 percent in the week that ended last Friday, according to data compiled by Bloomberg.
A spokesman for Turkey’s banking regulator BDDK declined to comment on the matter on Friday, saying deposit rates are set freely by banks, based on their commercial considerations.
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