Turkish Finance Minister aims to exit FX-protected deposits amid strengthening dollar

Turkish Finance Minister Mehmet Simsek noted that the U.S. dollar has been gaining strength, particularly against emerging market currencies, and emphasized that it will take at least one year to realize the full impact of the current monetary policies in Turkey

Currently attending the annual meetings of the World Bank and International Monetary Fund (IMF) in Marrakech, Morocco, Simsek delivered significant insights into the state of the Turkish economy and the ongoing challenges it faces.

Addressing the issue of foreign exchange-protected deposits, Simsek indicated that the Turkish government is looking to discontinue this type of account. He stated, "We want to make traditional Turkish lira deposits more attractive when exiting currency-protected deposits." This move aims to provide more appealing options for depositors and potentially bolster the domestic currency.

Furthermore, Simsek highlighted the increasing strength of the U.S. dollar compared to the currencies of emerging market economies. He cautioned that the results of monetary policy decisions will not be immediately apparent and will require a significant time frame to fully materialize.

One of the consequences of this policy shift is the steady decline in currency-protected deposits in Turkish financial institutions. According to data from the Banking Regulation and Supervision Agency (BDDK), these deposits registered a record drop during the week ending on October 6th, falling to 74.6 billion Turkish lira (TL). The total value of currency-protected deposits in this week was 3.23 trillion TL, equivalent to approximately 117.3 billion U.S. dollars.

This marks the seventh consecutive week of declining currency-protected deposits in Turkey. Furthermore, data from the Central Bank of Turkey (TCMB) reveals that local residents' foreign currency deposits have also decreased, mainly due to the parity effect. During the same week, these deposits fell by 406 million U.S. dollars, reaching a total of 171.6 billion U.S. dollars. When adjusted for the parity effect, there was an increase of 551 million U.S. dollars in foreign currency deposits.

Breakdowns of these figures indicate that individual foreign currency deposits decreased by 570 million U.S. dollars, while corporate foreign currency deposits increased by 1.1 billion U.S. dollars.

In recent times, the Central Bank of Turkey (TCMB) has been implementing restrictive measures to encourage the withdrawal of funds from currency-protected accounts. In the most recent adjustment, the TCMB eliminated the minimum interest requirement for Turkish lira accounts with currency protection.

Additionally, in August, changes to the regulations affecting securities and reserve requirements included an alteration that considered currency-protected accounts as Turkish lira deposits within the TL deposit ratio, aiming to increase the share of standard local currency deposits in total deposits in financial institutions. This policy shift is part of broader efforts to encourage investors to consider traditional Turkish lira deposits over currency-protected alternatives.