The compensations — or “covert” interest — that Ankara pays to depositors under a scheme to curb dollarization in Turkey are on course to balloon beyond its interest payments, while the battered Turkish lira has already fallen back close to its record low in December, when the scheme was introduced.
The so-called FX-protected deposits were launched as part of emergency measures that President Recep Tayyip Erdogan announced shortly after the lira sank to an all-time low of 18.4 against the dollar on Dec. 20, driven down by unorthodox rate cuts by the central bank at Erdogan’s behest. Under the scheme, the treasury and the central bank make up for any losses that lira depositors incur from the currency’s depreciation. Despite its initial rebound to the region of 11 versus the dollar after the announcement of the scheme, the lira has since plummeted anew, trading at about 18.1 against the greenback on Aug. 22.
