Introduction to Turkey’s Economic Situation
Turkish policymakers are keeping a close eye on deposit trends as the central bank governor, Fatih Karahan, hinted that changes in local Turkish lira deposit trends may impact monetary policy. This comes just a day after the government raised taxes on financial returns, sparking questions about the timing of the tax adjustment.
The Central Bank’s Stance on Interest Rates
The Central Bank of the Republic of Türkiye (CBRT) is closely monitoring Turkish lira deposits held by local savers, viewing trends in these accounts as a key indicator for monetary policy. Karahan’s remarks suggest that the state of local deposits will have a significant impact on upcoming decisions, indicating a cautious stance on resuming interest rate cuts.
New Taxes on Turkish Savers
A recent decree published in the Official Gazette introduced a tax increase on Turkish lira time deposits, raising the withholding tax from 15% to 17.5% for maturities up to six months, and from 12% to 15% for terms up to one year. Investment funds were also subject to a tax increase, with the withholding rate rising from 15% to 17.5%. However, non-resident investors are exempt from these rates.
The Impact on Deposits and Interest Rates
Despite a weighted average interest rate on deposits with maturities of up to three months remaining high at around 58%, total deposits in Türkiye’s banking sector declined by ₺522 billion ($13 billion). This included a 3.4% drop in Turkish lira deposits and a 1.7% decrease in foreign currency holdings. The new tax adjustment is expected to put additional pressure on local deposit levels, potentially accelerating the decline in domestic savings.
Conclusion
In conclusion, the Turkish economy is facing significant challenges, with the central bank closely monitoring deposit trends and adjusting tax rates on financial returns. The decline in local deposits and the potential impact on interest rates have sparked questions about the timing of the tax adjustment and the central bank’s stance on resuming interest rate cuts. As the Turkish central bank prepares for its next monetary policy meeting on July 24, it remains to be seen how these developments will shape the country’s economic future.
