Türkiye's central bank chief on Friday stressed momentum in a shift toward Turkish lira assets and said portfolio inflows into the country surpassed $10 billion since the beginning of April.
The renewed confidence is attributed to growing optimism about the disinflationary path, which is boosting the shift in preferences toward lira-denominated savings and financial instruments, Fatih Karahan, the governor of the Central Bank of the Republic of Türkiye (CBRT) said.
"Particularly since early April, the share of lira deposits has surged, driven not only by the unwinding of foreign exchange-protected deposits (KKM) but also by reductions in foreign currency deposit accounts," Karahan told the Climate Economy Summit in Istanbul.
He highlighted that the share of lira deposits in total deposits rebounded to 48% as of this May from as low as 31% in August last year.
"During the same period, the balance of foreign exchange-protected deposits has halved from its peak," Karahan noted.
The government and the monetary authority has sought to gradually reduce the KKM scheme, launched in late 2021 to help reverse dollarization and support the lira.
The program sought to encourage people to keep their savings in lira through guarantees to compensate for losses from a decline against hard currencies.
"We are also witnessing a rise in foreign investor demand for lira assets," Karahan stated. "Portfolio inflows to our country since the beginning of April have exceeded $10 billion, primarily driven by government domestic debt securities."
FX position improves by $70 billion
The positive sentiment is further reflected in the improvement of Türkiye's net foreign exchange position, said the governor.
"Our net foreign exchange position has improved by approximately $70 billion over the last two months," Karahan explained. "This indicates the start of a positive cycle toward lira assets."
Turning to the inflation outlook, Karahan projected that headline inflation will decline every month for the rest of the year, starting in June.
"Due to base effects, this decline will be particularly noticeable during the summer months," he elaborated. "However, the underlying trend in monthly inflation will remain our key indicator for determining our monetary policy stance."
As of May, we estimate this underlying trend to be around 3%."
Inflation reached an annual 75% in May, in what is said to mark the peak before a series of interest rate hikes and a relatively stable lira bring relief.
Last month, the central bank raised its year-end inflation forecast to 38% and said it would "do whatever it takes" to prevent the outlook from deteriorating further.
Recalling the estimates, including 14% for the end of 2025, Karahan emphasized that the projections serve as intermediate targets "in determining the tightness of our monetary policy."
The central bank has raised its benchmark policy rate by 4,150 basis points since June last year to 50%, mainly to cool demand, the main driver of inflation.
Karahan emphasized that they are closely monitoring the convergence of inflation realizations and expectations to their forecast path.
"Should there be a significant and persistent deterioration in the inflation outlook, we will tighten our monetary policy stance," Karahan affirmed.