TCMB Governor Fatih Karahan: A Positive Cycle for TL Assets Has Begun

TCMB Governor Fatih Karahan stated that the increase in confidence in the disinflation path has increased the inclination towards Turkish Lira savings and financial assets. “The increase in reserves reinforces confidence in the TL,” he said.

Dr. Fatih Karahan, Governor of the Central Bank of the Republic of Turkey (CBRT), noted in his speech at the summit that the recent increase in confidence in the disinflation path has led to an increase in the inclination towards Turkish Lira savings and financial assets. With the growing demand for the Turkish Lira, the share of Turkish Lira deposits in total deposits, which fell to 31% in August last year, reached 48% by the end of May, Karahan said. He added that the balance of Exchange Rate Protected Deposits (KKM) has halved from its peak.

“Headline Inflation Will Decrease Every Month”

Karahan highlighted that foreign investors similarly increased their demand for Turkish Lira assets and continued, “With the increasing demand for the Turkish Lira, our reserves have risen above $145 billion, and the Central Bank’s net foreign exchange position has improved by approximately $70 billion over the past two months. This indicates that a positive cycle for Turkish Lira assets has begun.

As Turkish Lira savings increase and investors prefer Turkish Lira financial assets, our reserves grow, and this increase in reserves reinforces confidence in the Turkish Lira, supporting the continued transition to Turkish Lira assets.” Karahan predicted that, based on leading indicators and developments in the credit market, the normalization of demand conditions will continue to strengthen in the second half of the year.

According to the disinflation paths, headline inflation is expected to decrease every month for the remainder of the year, starting in June. “This decline will be particularly noticeable during the summer months due to base effects. However, in setting our monetary policy stance, the main indicator we follow will continue to be the underlying trend of monthly inflation.

As of May, we estimate that the underlying trend of monthly inflation is around 3%. Our tight monetary policy stance will continue until inflation expectations converge with the predicted forecast range. With our tight stance, we foresee that the main trend will decline with the balancing of domestic demand, the real appreciation of the Turkish Lira, and the improvement in inflation expectations,” he said.

Karahan pointed out that the total asset value of global sustainable capital market funds was approximately $30 trillion in 2023. “It is estimated that this market will reach a size of $40 trillion by 2030. The growth of sustainable financing markets with Turkish Lira-denominated assets domestically will deepen financial markets and increase the variety of Turkish Lira-denominated savings instruments,” he stated.

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