The Central Bank of the Republic of Turkey (CBRT) has announced a significant policy change, discontinuing its foreign exchange protection scheme. This move marks a pivotal moment in Turkey’s financial landscape, affecting depositors and investors alike, particularly those involved in citizenship by investment programs.
Strategic Decision Redefines Investment Landscape for Turkish Lira Holders
Turkey's Evolving Financial Policy
The Central Bank of the Republic of Turkey (CBRT) recently unveiled a transformative shift in its monetary strategy by terminating the foreign exchange protection scheme previously offered to depositors. This decision was revealed in the December 25 monetary policy roadmap, coinciding with positive economic trends. Under the former lira-denominated FX-protected deposits (KKM) system, individuals were safeguarded against currency depreciation. If the lira’s value dropped below the interest rate earned during the deposit term, the central bank compensated for the shortfall. For instance, CIP investors who maintained $500,000 in Turkish lira deposits benefited from this mechanism, ensuring their investments retained their dollar value despite market fluctuations.Impact on Citizenship by Investment Programs
This policy alteration significantly impacts prospective Citizenship by Investment (CIP) applicants. Previously, these investors enjoyed robust protection against currency volatility. Now, new applicants must navigate direct exposure to exchange rate movements. The grandfathering provision allows existing KKM account holders, including current CIP investors, to retain their protections until maturity. This creates a dual market scenario where established investors maintain safeguards while newcomers face different risks. As of December 20, 2024, KKM balances had dwindled to $34.2 billion, constituting just 6% of total deposits, down from a much higher percentage earlier. Economic Indicators and Market Confidence
Throughout 2024, the CBRT gradually reduced minimum interest rates for protected deposits from 85% to 50% of the policy rate, signaling growing confidence in the economy. However, the gap between current inflation at 47% and the central bank’s target of 5% underscores potential challenges ahead. Despite these concerns, international reserves have reached $164 billion, with net reserves excluding swaps increasing to $50 billion. External liabilities decreased by $11 billion over the year, enhancing the bank’s capacity to manage market volatility. Under the floating exchange rate regime, the CBRT explicitly states it will not intervene to defend any specific exchange rate level.Investment Prospects and Market Projections
For CIP investors, this transition presents both opportunities and risks. While the high policy rate of 50% offers substantial yield potential, currency movements could impact the real value of investments. Financial institutions provide varied outlooks; Morgan Stanley projects the TRY/USD rate to reach 43 lira to the dollar by year-end, while S&P Global anticipates 42 TRY/USD. AI-based platforms like WalletInvestor forecast steeper depreciation, predicting 62 TRY/USD by 2028. The CBRT’s November upgrade of Turkey’s credit rating to BB- reflects growing confidence in the country’s economic management, though challenges remain. The bank anticipates continued demand for lira assets as disinflation becomes more evident through 2025.Industry Perspectives and Future Outlook
Ahmet Şener, CEO of Smart Citizenship, views the end of the KKM scheme as a missed opportunity for CIP investors. “It was essentially a free passport since it guaranteed the investment in USD terms plus an additional 6% interest,” he explains. “Despite zero risk, many people didn’t utilize it due to a lack of understanding.” He notes that many preferred buying overpriced real estate, leading to prolonged processing times for citizenship applications. The government now scrutinizes inflated property valuations closely, causing delays. Şener believes the deposit route was one of the simplest and fastest options but that its termination has ended it for risk-averse investors. Other CIP investment options remain unchanged, including $400,000 in real estate or various other options at $500,000, such as capital investment, REITs, government bonds, and investment funds.READ MORE