Türkiye's central bank Sunday began rolling back a government-backed scheme that safeguards Turkish lira deposits against foreign exchange depreciation, marking another move toward more orthodox policies following a shift toward interest rate hikes.

The Central Bank of the Republic of Türkiye (CBRT) said early on Sunday that it lifted targets applied to banks for certain levels of conversions of foreign-exchange deposits to the lira-protection scheme, known as KKM.

The scheme, unveiled in late 2021 sought 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

In a reversal, the central bank now wants lenders to set a new goal of transitioning KKM accounts into regular lira accounts, in part by dissuading companies and individuals from renewing the KKM accounts. According to a separate decree in the Official Gazette, the central bank also raised lenders' reserve requirement ratios for FX deposits, further nudging customers into regular lira accounts.

For FX accounts with up to one-month maturities, the reserve ratio was raised to 29% from 25%, the presidency's Official Gazette said. Those up to a year have a 25% ratio.

The volume of deposits under the scheme has reached about TL 3.35 trillion ($124 billion), in a week to Aug. 11, according to the Banking Regulation and Supervision Agency (BDDK) data.

The lira has been stable over the last month and closed last week at 27.02 against the U.S. dollar after declining 44% in 2021 and 30% in 2022.

Since winning reelection in May, President Recep Tayyip Erdoğan has appointed Mehmet Şimşek, who is highly regarded by financial markets as the new Treasury and Finance Minister, as well as a new central bank governor, Hafize Gaye Erkan, a former senior U.S.-based bank executive, in moves seen as heralding a switch to tighter interest rate policy.

Since then the central bank has raised the borrowing costs by 900 basis points to 17.5%, and according to local economic analysts, is expected to further raise interest rates during a meeting scheduled for Aug. 24.

The central bank said the KKM move would "enforce macro-financial stability by supporting lira deposits" and pledged more such steps in line with the principles announced by the Monetary Policy Committee.

In this framework, the central bank aims to transition from accounts supported by currency protection to accounts in Turkish lira and renew a certain proportion of currency-protected accounts, thus shifting focus toward increasing lira share levels without currency protection.