Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

Turkey begins rolling back costly FX-protected deposits

Published Aug 19, 2023 08:27PM ET Updated Aug 20, 2023 02:55AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Woman holds Turkish Lira banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration
 
USD/TRY
+0.65%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

ANKARA (Reuters) -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 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, 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.

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.

After winning re-election in May, Erdogan named a new finance minister and central bank chief to drive a policy U-turn including 900 basis points in rate hikes, and authorities have also pledged to ditch dozens of previous regulations to cool inflation and balance the trade deficit.

The central bank said the KKM move would "enforce macro financial stability by supporting lira deposits" and pledged more such steps.

For FX accounts with up to one-month maturities, the reserve ratio was raised to 29% from 25%, the presidency's Official Gazette said in a separate overnight announcement. Those up to a year have a 25% ratio.

Hakan Kara, former central bank chief economist who is at Bilkent University, said the bank seeks to "kill two birds with one stone" by raising deposit rates while curbing KKM accounts. "Official interest rates could have been raised without engaging in these complex affairs," he added.

($1 = 27.0687 liras)

Turkey begins rolling back costly FX-protected deposits
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Lay app
Lay app Aug 20, 2023 3:25AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
wow
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email