Turkey’s central bank is pushing commercial lenders to sweeten the terms of an emergency savings scheme created to protect the lira after Turks pulled cash from the program, according to people familiar with the discussions.
(Bloomberg) —
Turkey’s central bank is pushing commercial lenders to sweeten the terms of an emergency savings scheme created to protect the lira after Turks pulled cash from the program, according to people familiar with the discussions.
The savings plan — which promises a state-guaranteed return on lira deposits that matches or beats any decline against the dollar — was introduced in the midst of a currency crisis late 2021. It became a key tool for the government to stabilize the lira after it lost almost 30% of its value in the space of a month.
But after the program suffered outflows in November and saw almost no fresh inflows since, there’s concern fresh withdrawals will increase demand for hard currency at a time when the lira is trading at a record low.
Officials from the central bank met with lenders’ representatives this week to convey their discontent over exits from the savings tool, according to the people, who asked not to be named because the meeting was private. At the meeting, the regulator also asked banks to offer better returns to customers who convert foreign currency holdings into lira in order to participate in the savings program.
A representative for the central bank declined to comment on the meeting when contacted by Bloomberg.
The move follows new regulations from the central bank last month that banned lenders from using derivatives and options that eventually allow lira deposits to create new demands for foreign currency.
Under the FX protected deposit scheme, savers can open accounts with liras they already hold or with foreign currency that they can convert. If the lira depreciates by more than the interest rate on the account, the Turkish Treasury is responsible for paying the difference to the first group, and the central bank to the second. The program has cost the Treasury nearly $5 billion, according to Treasury and Finance Minister Nureddin Nebati.
Even with 1.46 trillion liras ($77.7 billion) held in the savings program as of Dec. 23, the Turkish currency was among the worst performers in emerging markets last year. It extended its slide to a record low on Thursday, sinking as much as 0.2% to 18.7868 versus the greenback.
Read More: Turks Shun State-Backed Deposits That Helped Stop Lira Rout
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