Turkish central bank to provide support to firms that convert forex from abroad

Türkiye's central bank said on January 26 it would provide foreign exchange conversion support to companies that bring in foreign currency from abroad, including exporters and tourism firms.

Firms can benefit from a 2 per cent discount as conversion support when converting foreign currency from abroad if they pledge not to buy foreign currency for a period determined by the bank and deposit the remaining amount to conversion accounts as part of a scheme to protect lira deposits against forex depreciation, according to the central bank, Reuters reports.

Analysts have voiced concern that the practice could create a separate FX conversion rate to the trading rate in the free market.

But Central Bank Governor Sahap Kavcioglu dismissed this criticism when asked about it at a presentation on Thursday.

"We don't have dual foreign exchange rate, we are just encouraging foreign currency resources from abroad...I do not agree with this interpretation of the practice," he said.

"There is no different foreign exchange rate application in Türkiye, the FX rates at the banks are the same to the exporters," Kavcioglu added.

As part of its so-called liraization strategy, the central bank has taken several measures to revive interest in currency, after years of depreciation and high and volatile inflation sent Turks seeking safer places for their savings.

These steps, as well as lira stability in the last several months thanks partly to indirect forex sales to the market, helped cut share of foreign currencies to around 46 per cent of total bank deposits compared to some 65 per cent a year ago.

The latest steps are expected to further ensure a stable course in foreign exchange rates.

Last week, the central bank set the remuneration rate on foreign currency free reserve accounts at 4.5 per cent , establishing a remuneration rate for lenders who hold forex free reserve accounts in the country.

Separately, the central bank removed a 12 per cent maximum interest rate limit on lira deposits converted from foreign currencies, in a move that is aimed at attracting more fx holders to turn to lira with higher rates.