Turkey begins rolling back costly FX-protected deposits

Ankara, Aug. 20 (BNA): Turkey’s central bank began rolling back on Sunday a growing and costly scheme that protects lira deposits from FX depreciation, marking another move toward more orthodox policies following a shift toward interest rate hikes.

 

The central bank said in the early hours on Sunday that it lifted targets applied to banks for certain levels of conversions of foreign-exchange deposits to the lira-protection scheme, known as KKM, Reuters reported.

 

In a reversal, the central bank now wants lenders to set a new goal of transitioning KKM accounts into regular lira accounts, in part by dissuading companies and individuals from renewing the KKM accounts.

 

According to a separate decree in the Official Gazette, the central bank also raised lenders’ reserve requirement ratios for FX deposits, further nudging customers into regular lira accounts.

 

President Tayyip Erdogan’s government introduced the KKM scheme in late 2021 to arrest a historic plunge in the currency.

 

KKM accounts have since ballooned to some $117 billion, or 3.1 trillion lira, around a quarter of total bank deposits. This has been stoked by a roughly 68% fall in the lira in the last two years.

 

To cover KKM depreciation costs, the central bank paid an estimated 300 billion lira ($11 billion) in June and July, when the lira plunged again. This month’s costs were estimated at 350 billion lira.

 

The lira has been stable over the last month and closed last week at 27.02 to the dollar, an all-time low.

 

 

 

M.I.