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Turkey mulls new financial instruments to shield against inflation


Turkey is considering a range of new financial products that would offer guarantees against inflation losses, according to a senior official.

It would follow a scheme unveiled last month to protect Turkish lira deposits against currency volatility, a measure designed to make citizens feel safer about holding their savings in the bank.

The scheme effectively ties the value of special new deposits to the United States dollar by promising to compensate for losses incurred from swings in the exchange rate.

The government is working on various new financial products to put the nation back on track and help it ultimately reach its current account surplus goal, Göksel Aşan, head of the Presidency Finance Office, told an interview with Nikkei Asia.

“The Treasury and Finance Ministry is working on inflation-indexed instruments,” Aşan said. “I do not think that it will be another bank deposit instrument, which would mean competing with the new forex-indexed lira deposits,” he said, hinting at bonds without specifying.

The scheme announced by President Recep Tayyip Erdoğan on Dec. 20 had reversed a slide in the lira and triggered a historic 50% surge in the currency’s value in the week through Dec. 24.

Deposits surge

Deposits increased by over TL 60 billion after the anti-dollarization plan announcement, Aşan said, expressing expectations that the new deposit instruments would collect TL 150 billion to forex-indexed lira accounts within a month.

“I also expect an additional $5 billion to be exchanged back to the lira from standard forex deposit accounts in the same period,” he said, suggesting a total sum of $16 billion at the current exchange rate.

The lira had fallen to an all-time low of 18.40 per U.S. dollar on Dec. 20, before recording the historic rebound on the same day. The currency on Friday traded at around 13.4 per dollar and closed 2021 down over 40%.

The depreciation had made imports more expensive and followed a series of interest rate cuts, as the Central Bank of the Republic of Turkey (CBRT) slashed its key policy rates by 500 basis points to 14% since September.

The annual inflation rose to more than 21% in November, the highest reading since November 2018, driven by rising food and import prices. It is expected to have exceeded 30% in December, breaching the level for the first time since 2003, according to surveys.

Among other initiatives, work is also underway to bring part of an estimated 5,000 tons of “under-the-mattress” gold into the financial system by introducing gold certificates to be exchanged with physical gold, Aşan told Nikkei.

These gold items are estimated by the government to be worth some $280 billion.

Aşan’s remarks followed an announcement by the country’s central bank, which said it would also extend an incentive program to people who keep their savings in gold.

Erdoğan on Friday called on citizens to keep all their savings in lira and shift gold savings into banks, saying the recent exchange market volatility was largely under control.

Aşan said he also expected a high inflation reading to come for December when the Turkish Statistical Institute (TurkStat) announces the data on Monday, given the sharp lira slide last month. He expects inflation to peak in March and close the year below 17%.

Energy, electricity prices hiked

Ahead of the new inflation reading, Turkey on Saturday sharply raised nationwide electricity and natural gas prices for the new year. Prices also jumped for petrol, car insurance and some bridge tolls.

The Energy Market Regulatory Authority (EPDK), citing high global energy inflation, said electricity prices were raised by as much as 125% for high-demand commercial users and by around 50% for lower-demand households for 2022.

Natural gas prices jumped 25% for residential use and 50% for industrial use in January, national distributor BOTAŞ said. The price rise was 15% for power generators.

In Istanbul, home to around a fifth of Turkey’s population of 84 million, retail prices jumped 9.65% month-over-month in December for an annual rise of 34.18%, the most in at least a decade, the Istanbul Chamber of Commerce (ITO) said. Home appliance prices were up more than 20% while food rose by nearly 15%.

Wholesale prices in the city jumped 11.96% from November for an annual rise of 47.10%, ITO said.

Other adjustments included the maximum compulsory traffic insurance premium being increased by 20%, effective as of Feb. 1.

Petrol prices rose by more than half a lira per liter, while diesel prices increased by TL 1.29, the Energy, Petroleum, Gas Stations Employers Union (EPGIS) said on Friday.

The inflation-indexed bonds can make some contribution if introduced, Piri Reis University economics professor Erhan Aslanoğlu told Nikkei.

Aslanoğlu said it would depend on their maturity, and they can absorb some of the demand for dollar-buying.

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