The burden on a budget of Türkiye's government-backed scheme that seeks to encourage foreign currency conversion by safeguarding Turkish lira deposits from depreciation continues to decrease gradually, Treasury and Finance Minister Nureddin Nebati said on Sunday.
Nebati's remarks came after the volume of deposits under the scheme reached about TL 2.35 trillion (nearly $120 billion), a new record, after rising by a whopping TL 144 billion in the week ending May 12, marking the highest weekly increase ever.
The scheme, unveiled in late 2021 and known by its acronym KKM, seeks to keep dollarization at bay by encouraging people to keep their savings in lira through guarantees to compensate for losses from decline against hard currencies.
"The cost to the budget of the foreign exchange rate-protected deposit application, which has reached a total of TL 2.3 trillion, has continued to decrease gradually and has been realized as TL 95.3 billion ($4.81 billion) in total," Nebati wrote on Twitter.
The budget payments into the KKM stood at around TL 91.6 billion in 2022.
Nebati said the government does not expect it to create a serious cost in the coming period, citing a regulation that removed the scheme's maximum interest rate limit for domestic individual investors.
The regulation still stipulates that the rate offered to lira deposits as part of the scheme cannot be below the current policy rate of the Central Bank of the Republic of Türkiye (CBRT), currently standing at 8.5%.
Households have seen foreign exchange as a tool to shield themselves from volatility in the lira and high inflation, which has moderated over the last six months and eased to an annual 43.68% in April.
The lira declined 44% in 2021 and lost some 29% versus the U.S. dollar in 2022. The currency fell some 1% last week after holding mostly stable this year.
Nebati said the KKM sought to curb the "high volatility and panic atmosphere created in the foreign exchange markets."
"The panic atmosphere has been eliminated, the share of foreign currency deposit accounts in total deposits has been significantly reduced and a contribution to the stability in foreign exchange rates has been made," he noted.
Otherwise, the minister said volatility and an increase in fluctuations in the exchange rate could have triggered a major impact on Türkiye's external debt stock and significantly disrupt the development of fundamental markets.
"Moreover, this would have coincided with a period of sharp increases in commodity prices triggered by the Russia-Ukraine war and an increasingly tightening of global financial conditions," Nebati said.
Under such conditions, he stressed sectors could have faced significant costs, including a problem of costlier imports and borrowing at higher prices.