[costac]

Borrowing costs increased independently of the new savings product. They were rising well before it was announced and increased further because the market priced in a higher level of inflation following the sharp depreciation.

The higher rate on deposits that the new saving scheme offers doesn't increase funding costs for banks in anyway. The Treasury literally pays the depositors the extra yield, not the banks.

[mghfreud]

Does it matter if it is direct result or second order?

BTW, this week, the interest on private loans increased substantially, not gradually.

[costac]

Independent is very different from second order.

And, yes I know interest on loans increased substantially but that has nothing to do with the new saving product and everything to do with the meltdown in the lira that preceded.

Edit: And in any case why would banks raise loan rates if they don't have to bear the cost of the new product?

[mghfreud]

You are asking the correct question, it does not matter if the cost is financed by banks or public. The cost of borrowing increased substantially, even though exchange rate decreased in the last one week.

Access to TL got harder by the actions of the government. This is why interest rates increased.

[costac]

Of course it matters. If banks bare the cost, they have to pass it on to their customers by raising rates. If the public pays for it, the government and central bank will end up printing money --one way or another -- to pay depositors.

And all this mind you only IF people move a substantial amount of their lira deposits to the new product AND the lira depreciates more than the rate on the underlying lira deposit account (only then are savers eligible for the kicker rate).

So far, savers have moved around 10b liras into this product, out of a total 4.3 trillion lira of deposits.

You're telling me banks raised rates because of that marginal shift? And even though, I repeat, they don't have to pay for it?

[mghfreud]

I am saying that the government raised interest rates substantially, one way or the other. It used couple of tools to do it, one of them is promising expected dollar appreciation as interest. (Tl is expected to depreciate at least at the rate of inflation, which substantially higher then central banks overnight rate, hence they have increased interest)