ALBAWABA – The central bank of Turkey announced the end of the conversion targets to FX-protected Turkish lira deposits on Sunday, which was introduced late in 2021 to decelerate the fall in the national currency’s value.
Foreign Exchange (FX) protection helps curb dollarization and bolsters the value of the national currency against hard currencies.
To do so, deposits in these FX-linked accounts are guaranteed a return equal to the rate of the lira’s weakening, or a pre-set regular interest in case the currency remains steady, Bloomberg explained.
"As part of the simplification process, it has been decided to end the implementation that stipulates a target for conversion from foreign currency deposits to FX-protected deposits," the bank said in a statement.
These new regulations were intended to increase Turkish lira deposits while decreasing FX-protected deposits by ensuring transition from FX-protected accounts to Turkish lira deposits, Reuters reported.
FX-protected Turkish Lira deposits now total at about 3.4 trillion liras ($125 billion), more than 28 percent of all deposits, according to Bloomberg.
In a statement, the central bank said it aims to decrease FX-linked deposits, thus “contributing to the strengthening of macrofinancial stability.”
Lenders whose clients do not convert a certain ratio of their FX-linked deposits to regular lira deposit accounts will have to purchase additional government bonds, according to the central bank’s decree.
In a separate decree that was published Sunday in the official gazette, the central bank also announced raising the reserve requirement ratios for foreign currency deposits, Bloomberg reported.
The new ratio was set at 29 percent, up from 25 percent, the central bank said in a separate decree. The ratio for accounts with maturities of as long as a year was set at 25 percent.
Higher foreign currency reserve requirement ratios will force lenders to park more foreign currency at the central bank.
Meanwhile, the rule that imposed higher ratios for lenders whose lira deposits were lower than a set rate has been removed.
