ISTANBUL: Turkey's Finance Ministry said on Tuesday a new protection scheme meant to boost confidence in the currency will be applied to lira deposits with maturities of three to 12 months, and based on the central bank policy rate.

In a statement, the ministry said all interested banks will be able to offer the instrument, which will protect against FX volatility and deposit in customer accounts the difference between foreign currency exchange rate and the deposit yield.

"The instrument will compare the exchange rate of opening and maturity date of the deposit account and its interest rate, and remunerate the account from the higher rate," the ministry said.

Turkish lira charges back after Erdogan's anti-dollarization plan

A withholding tax will not be charged from this instrument, it said.

After hitting a series of record lows on concerns over the direction of economic policy, Turkey's lira recovered in volatile trading on Tuesday after Turkish President Tayyip Erdogan proposed the measures to protect local currency savings against such swings.

"It seems fiscal and monetary policies became intertwined, whereas in a healthy economy, these policies should remain independent. This is a dangerous situation," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.