The Turkish central bank has lowered the minimum interest rate applicable to foreign exchange-protected deposits to 35% from 40%, according to a document seen by Reuters and reported on Wednesday.

In this way, the Central Bank of the Republic of Türkiye (CBRT) continued to support the transition from foreign exchange-protected deposits (also known as KKM) to Turkish lira deposits and to reduce KKM accounts, while targeting to increase the share of lira in the banking system.

With the implementation instructions sent by the central bank to the banks, the lower limit of the interest rate applied to KKM accounts was reduced from 80% to 70% of the policy rate. The exchange rate difference amount to be paid by the CBRT at the end of the maturity will continue to be calculated based on the policy rate, Anadolu Agency (AA) reported.

Additionally, it was announced that no payment under the name of "additional return" can be made for newly opened and renewed accounts. Thus, it is expected that the reduction in KKM accounts would accelerate and the share of lira deposits would increase.

These changes will be effective as of July 22, 2024, the reports said.

Authorities have been seeking to gradually phase out the scheme, known as KKM, which has weighed heavily on the budget.

It was launched in late 2021 to help reverse dollarization and support the lira. It sought to encourage people to keep their savings in lira through guarantees to compensate for losses from a decline against hard currencies.

The deposits under the scheme have significantly regressed since the start of the move to roll it back last August amid the wider shift in monetary policy.

Previously, the lower limit of the interest rate applied to KKM accounts corresponded to 40%, which was 80% of the 50% policy rate. The 40% level was reduced to 35% with the new implementation instructions.