According to the decision published in the Official Gazette, a regulation that forces banks to deposit more money with the Central Bank if the lira deposit rate target is not met was eased. According to this;

· With the amendment, if 57% of a commercial bank's deposits are not in Turkish Lira, the Central Bank will apply an additional 5 percentage point foreign currency reserve requirement.

· The previous threshold was 60%.

· Banks below the threshold will be given an additional four weeks to meet the target rate.

Turkish Lira Falls in June as Policy Changes... Finance Minister pushes for gradual change... Source: Bloomberg

The majority of the more than 300 regulations introduced before the election were aimed at increasing the weight of TL in bank balance sheets. Due to these methods, depositors were also heavily directed to TL by banks. Now, efforts are being made to revert from such policies, but because there are too many changes in practice, there are risks in terms of financial stability to abolish these regulations with very sharp transitions. For this reason, the steps are taken small in order to adapt the financial sector. Like the previous relaxed regulations, banks will be relieved in terms of balance sheet management.

Banks will cease to buy bonds going forward. The steps of the Central Bank, the compliance of the policy rate with the market and bank rates, and the latest regulatory changes will also limit the increase in deposit rates. Before the elections and the June 30 balance sheet realizations, banks were increasing interest rates to collect deposits. There is no reason for them to continue this at the moment. For this reason, there may be a partial decrease in deposit rates, but this decrease will be quite limited. Because when deposit interest rates decrease, the probability of this money being directed to foreign currency is quite high as well as the possibility of directing it to the stock market. There will also be an increase in the exchange rate when there is a demand for foreign currency, which we currently expect to have a positive effect on inflation due to both tax increases and exchange rate increases.

Commercial loan rates continue to be well below inflation. After the last Central Bank MPC decision, although there is a movement towards 17.6% as of the week of June 30, it is still quite low. This actually means that the 15% Central Bank policy rate is also quite low. After the Central Bank's 20 July MPC decision, commercial loan rates will increase at a similar rate. Consumer loans are at 44% on the weighted average as of June 30. Both the appetite for use of credit and the appetite for lending of banks will be low.

If we look from the point of view of the CBRT; It is expected that the Central Bank will increase the interest rate to 20% at its meeting on 20 July. We expect an increase towards the minimum 18% band within the framework of the gradual approach. Regulatory changes will continue in the macro and micro precautionary framework and the simplification after Mehmet Şimşek's appointment will continue. We expect the newly regulated 57% limit to be gradually lowered over time, and such regulations to be lifted gradually, as the balances occur on the basis of economy and financial stability.

Kaynak Dinamik Yatırım- Enver Erkan