(Bloomberg) -- Turkey’s central bank has told commercial lenders they must get more customers to put their money in an emergency savings scheme created to protect the lira and asked them to stop using loopholes that create new demand for dollars.

The savings plan — which promises a state-guaranteed return on lira deposits that matches or beats any decline against the dollar — was introduced during a currency crisis late 2021. It became a key tool for the government to stabilize the lira after it dropped 30% within the space of a month.

But Turks have increased their holdings of foreign exchange by as much as $1.7 billion dollars over the past month, while inflows into the lira savings plan remained somewhat stable over the same period. 

In an online meeting with lenders on Wednesday, the central bank expressed dissatisfaction over conversion rates to the FX-protected lira deposits program, people with knowledge of the discussions told Bloomberg, asking not to be identified because the meeting was private. 

The bank also reiterated its request to make the tool more alluring. The last time the central bank asked lenders to sweeten the terms of FX-protected deposits, interest rates on deposits ended up going higher. Previously such warnings have been followed by fresh regulations.

The central bank declined to comment.

Policymakers want to keep the lira stable before elections in May and have sought to diminish the use of foreign currency transactions in the banking system. The lira has weakened this month as customers sought hard currencies to shield themselves from volatility around the elections.

One person said the lenders were told to refrain from using derivatives which officials say allow lira deposits to create new demand for FX. 


©2023 Bloomberg L.P.