A Turkish scheme linking lira deposits to the value of the dollar is off to a slow start, attracting about $6.3 billion worth of capital in its first two weeks, according to figures provided by Treasury and Finance Minister Nureddin Nebati on Tuesday.
President Recep Tayyip Erdoğan announced the new mechanism on Dec. 20 after the lira sank to successive record lows against the dollar. The currency rallied strongly from an all-time low of 18.36 per dollar in the week that followed, but it has declined for six of the last seven trading days, falling 1.2 percent to 13.27 per dollar on Tuesday.
Preliminary data showed that Turks have invested 84.05 billion liras ($6.33 billion) into the new deposits, Nebati said, the Dünya newspaper reported. That is equal to around 1.7 percent of Turkey’s total bank deposits of 4.87 trillion liras reported by the banking watchdog for Dec. 24. It equates to about 4.5 percent of the 1.85 trillion liras invested in lira-denominated deposits.
Nebati said initial public interest in the mechanism was strong.
“Although we are at the beginning of implementation, it is seen that the interest of the citizens in the currency protected TL time deposit/participation fund is high,” he said.
The deposit mechanism offers a minimum annual interest rate of 14 percent. It provides additional income linked to the lira’s value against the dollar should the lira lose more than that amount. People are required to invest the money for a minimum of three months, and they lose all rights to profits should they withdraw capital early.
While the scheme provides protection against lira weakness, returns for investors would be lower than traditional lira deposits should the lira’s declines not compensate for additional returns offered by those accounts. Interest rates on traditional lira deposit accounts are currently as high as an annual 22.5 percent, according to hesapkurdu.com. Dutch bank ING is offering an annualised rate of 20 percent on 32-day deposits, it said.
The mechanism does not provide formal protection against inflation, which accelerated to 36.1 percent in December, the highest level since 2002. Inflation in Turkey is expected to exceed 40 percent for most of this year, U.S. investment bank Goldman Sachs said this week.
The majority of money in the Turkish banking system is invested in accounts with a maturity of 32 days or less.