The Turkish lira saw a significant decline during Wednesday’s trading session, coinciding with the restriction of maturity periods for foreign currency-protected deposit accounts.
On Monday, the Central Bank of Turkey announced its decision to limit the maturity periods for foreign currency-protected deposit accounts as part of its strategy to phase out this program.
In a statement, the central bank said it decided to terminate the opening and renewal of deposit accounts with six-month and 12-month maturities for deposits converted from foreign currencies and gold.
The Central Bank of the Republic of Turkey (CBRT) stated: "As part of the strategy to gradually phase out foreign currency-protected deposit accounts (KKM accounts), longer maturities for new and renewed accounts have been eliminated."
The statement added: "The CBRT has decided to terminate the opening and renewal of foreign currency-protected deposit and participation accounts—converted from foreign currencies and gold—with maturities of six months and 12 months as of January 20, 2025."
What is the KKM Program?
The KKM (foreign currency-protected accounts) program was introduced by Turkey in December 2021 to encourage the conversion of savings from foreign currencies to the Turkish lira. The program guaranteed depositors protection against exchange rate fluctuations alongside interest earnings. Its goal was to stabilize the local currency and reduce dollarization.
However, the program faced criticism due to its high financial cost and its impact on the national budget. As Turkey shifts toward more conventional economic policies, the program is being scaled back gradually, with plans to end it by 2025. The central bank previously announced its intention to terminate the KKM program within this year.
The Transition Towards 2025
In December, the bank outlined its 2025 policy, stating: "As the process of reducing inflation becomes clearer in 2025, demand for lira-denominated assets will continue. Given the increased share of lira deposits and the decline in KKM accounts, the CBRT will terminate the KKM program in 2025."
KKM accounts have been declining steadily for more than 70 weeks, following the announcement in the summer of 2023 of plans to scale back the program.
The program was initially adopted in late 2021 to mitigate dollarization and address the sharp depreciation of the lira. Under the program, the central bank protected deposits by covering the costs of currency devaluation.
As economic policies shift towards more traditional approaches, authorities have been taking gradual steps to phase out the program, which has also placed significant strain on the budget.
The Current State of the Lira and Deposits
Meanwhile, the share of the Turkish lira in total deposits has continued to rise, reaching 58.7% as of January 3, according to central bank data.
During today’s trading session, the Turkish lira weakened by 0.6%, reaching 35.65 lira per dollar. Against the euro, it declined by approximately 0.85% to 37.27 lira per euro.
In contrast, the price of gold denominated in Turkish lira rose by 0.62% to 3,161 lira per gram.
