Türkiye to end forex-linked deposit plan

Türkiye plans to end its FX-protected deposit programme in the new year, said Treasury and Finance Minister Mehmet Simsek.

“2024 will be a year annual inflation starts to decline, reserve adequacy increases further, the foreign exchange protected system ends, a permanent improvement in the current account begins, and fiscal discipline is established,” Simsek said in a post on the social media platform X.

“It will be a year the foundation of sustainable high growth is strengthened,” he added.

The massive programme, also known as KKM, was introduced in December 2021 with the goal of reversing dollarisation in deposits and to boost the Turkish currency.

It was designed to encourage more savings in Turkish liras rather than foreign currencies by guaranteeing returns on lira deposits that compensate for any exchange-rate losses.

The KKM was one of the tools used to try and support the Turkish lira when it came under pressure from interest rate cuts in a high inflation environment – ultra-loose monetary policy that was among the unorthodox economic ideas pursued by President Recep Tayyip Erdogan.

Following his re-election in May, Erdogan changed his economic team, bringing in former Wall Street bankers – Simsek as finance minister and Hafize Gaye Erkan as central bank governor – in a bid to lure foreign investors back to Türkiye.

The officials started the policy normalisation process by reversing certain old regulations and raising Türkiye’s key interest rate by a total of 3,400 basis points to 42.5 per cent.

A gradual decrease in FX-protected accounts was one of the goals of the new team.