Politics
Trkiye optimistic as FX-related deposit withdrawals accelerate
The Turkish government expects the decline in the volume of the currency-protected deposit system to continue after data showed withdrawals hit a six-month high last week.
Authorities are seeking to phase out the budget-draining program, known as KKM, in a broad policy shift since last year.
The central bank protects deposits from depreciation under the program, adopted in late 2021 to help reverse dollarization and support the Turkish lira.
Since President Recep Tayyip Erdoan was re-elected in May 2023, authorities have sharply raised interest rates and set a target of reducing the volume of KKM accounts.
The program's stock has decreased by TL 1.6 trillion ($48 billion) from its peak a year ago, Treasury and Finance Minister Mehmet Imek said on Thursday.
His remarks come after official data showed that KKM's volume decreased by TL 67.7 billion in the week ending August 2. This is the highest number of withdrawals since the week of February 2.
“KKM stock which was worth TL 3.4 trillion a year ago has decreased by TL 1.6 trillion in the last 50 weeks,” imek wrote on social media platform X.
The total volume decreased to TL 1.76 trillion in the week of August 2, according to the Banking Regulation and Supervision Agency (BDDK).
“We expect the accelerated release of KKM to continue in the near future,” imek said.
He referred to the fact that the system lost its tax advantage after authorities began imposing withholding tax on KKM accounts starting in August.
This comes after the Central Bank of the Republic of Turkey (CBRT) reduced the minimum interest rate applicable to KKM deposits from 40% to 35% in mid-July.
The central bank is spearheading the pivot to more orthodox policies and has raised its benchmark policy rate by 4,150 basis points since June last year, mainly to curb inflation.
The bank has kept the rate unchanged at 50% since March to allow the tightening to have an impact.
It wants to reduce the volume of the KKM in order to improve the efficiency of its monetary transmission mechanism.
The policy shift and monetary tightening helped the CBRT rebuild its foreign exchange reserves, along with a relatively stable pound that provided relief in the authorities' fight against inflation.
Annual consumer price inflation fell to 61.78% in July, accelerating what is expected to be a sustained decline.
On Thursday, the CBRT left its mid-term inflation forecasts for end-2024 and end-2025 unchanged at 38% and 14%, respectively, pledging to maintain tight monetary policy.
“To achieve the main objective of our program, namely price stability, we will continue to strengthen financial stability,” Imek said.
A chart shared by imek showed that KKM's share of total deposits has fallen from a peak of 26.1% about a year ago to 10.5%.
In dollar terms, deposits in the program, which hit a record $135 billion, fell to $53.7 billion last week, according to BDDK data.
Economists predict that this amount could drop to as much as $25 billion by the end of the year.
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