Ankara
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.
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, 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, which had been brought on by his unorthodox drive to slash interest rates despite rising inflation.
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. For FX accounts with up to one-month maturities, the reserve ratio was raised to 29% from 25%. Those up to a year have a 25% ratio.
