Turkey’s Central Bank Tweaks Reserve Rules to Cut Lira Liquidity

(Bloomberg) -- Turkey’s central bank tweaked its reserve rules to lower lira liquidity in the banking system.

The monetary authority on Tuesday cut the amount of gold banks are allowed to hold as part of their lira reserve requirements. The move effectively increased the amount of local currency that lenders are required to park at the central bank.

The central bank also increased reserve requirement ratios for foreign currency deposits by 200 basis points to offset any impact on its reserves. Its local and foreign currency holdings are expected to increase by 7.4 billion liras and $3.8 billion, respectively, the bank said.

The lira weakened 0.4% to 9.7253 per dollar at 9:55 a.m. in Istanbul.

Tuesday’s changes complement a similar decision by the bank earlier this year to end the use of the so-called Reserve Options Mechanism that allowed commercial lenders to keep some of their required lira reserves in foreign currency. 

The changes will be effective from October 28, with the maintenance period starting on November 12.

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