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Turkey begins rolling back ‘costly’ lira protection scheme

Turkey lira reserves Reuters/Dado Ruvic
The value of Turkey's lira has plummeted in recent years, but significant interest rates hikes have created more optimism

Turkey’s central bank has begun rolling back a costly scheme that protects lira deposits from FX depreciation by removing minimum interest rates, according to a document sent to banks and seen by two bankers.

Last week the central bank raised its interest rate to 30 percent, which would have been the new minimum rate for the so-called KKM deposit accounts.

One banker who saw the document told Reuters the change allows lenders to offer rates below 30 percent for KKM deposits that were initially opened with Turkish lira, rather than converted foreign currency.

The central bank did not comment on the document sent to banks.

It began moving last month to urge conversions from KKM to standard lira accounts. The government expects the level of deposits to remain mostly stable until the end of the year, and then a gradual phase-out over the coming years.

The KKM scheme was introduced to arrest a historic currency crash in late 2021 and it helped reverse a trend of Turks flocking to hard currencies and gold to protect their savings after years of lira depreciation.

According to data from Turkish regulators, 3.3 trillion lira ($121.29 billion) was held in foreign currency-protected accounts as of mid-September.