(Bloomberg) -- The Turkish central bank had a loss of 818.2 billion liras ($25 billion) in 2023, a reversal from years of profits driven by sharply higher interest rates and the cost of a government-backed savings program designed to shield depositors against currency depreciation.

The result, which compares with a 72 billion-lira profit in 2022, means the central bank will have to waive a transfer to the nation’s Treasury at a time when the budget is in a deep deficit. But the staggering loss also keeps the focus on the mechanism — known locally as KKM — designed to act as a backstop for the lira, which authorities introduced in late 2021 and have struggled to unwind.

Hakan Kara, the central bank’s former chief economist, said on social media platform X that the loss is a reflection of the “world’s most costly economics experiment,” referring to KKM. 

Turkey’s monetary authority is far from alone in suffering financially this year, with the likes of the European Central Bank recording its first loss in decades as a result of past stimulus measures and higher borrowing costs. In Turkey, after years of ultra-low rates sped up inflation, policymakers began raising their benchmark in June 2023, bringing it from 8.5% to 50% as of last month.

Read more: Lira Lifeline Became $124 Billion Problem That Haunts Turkey

The savings program that protects lira deposits from depreciation against hard currencies has emerged as one of the main challenges facing officials as they look to put policies on a more conventional track. A new team of technocrats installed last June has been trying to dismantle the tool by raising rates and encouraging a switch to regular lira deposits. 

The program still has the equivalent of about $70 billion in foreign exchange-linked savings.

Under the existing mechanism, lira depositors can hedge against currency losses by getting state-guaranteed compensation for any depreciation that exceeds the interest on the accounts. The costs stemming from the program — previously split between the Treasury and the central bank — were fully transferred to the monetary authority in July last year. 

Istanbul-based economist Haluk Burumcekci said the KKM, was “an important contributor” to the central bank’s loss. A more detailed breakdown should be available when Governor Fatih Karahan presents results at the central bank’s annual meeting with shareholders slated for this month, Burumcekci said.

--With assistance from Selcan Hacaoglu.

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