The KKM, or the Exchange-Rate Protected Deposit scheme was introduced by the Turkish Central Bank in a move to protect the Turkish lira against a drop in exchange rates while keeping the policy rate low. The account pays at least the central bank's policy interest rate and compensates the deposit holder for any decrease in the Turkish lira's value against foreign currencies. Did this policy work?
Depends on what we mean by work. Yes, it did stabilize the exchange rates for a while, the rates would have been much higher if not for this scheme, but it also cost billions to support, decreasing central bank reserves, and this injection of cash probably led to more inflation.
However, recently, the obligation of banks to pay at least the central bank policy rate was removed, and the Turkish Central Bank is continuing with its tightening policy, so the total returns from these accounts are likely to be below the market interest rates for regular deposits. Therefore KKM account have been getting less popular with millions being drawn from them. Inflows into regular Turkish lira deposits are expected as the central bank increased its policy rate to 40% this week, and the deposit rates are predicted to be around 45% on Turkish lira deposit accounts.
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