Turkey Nixes Albayrak Lending Incentive With Reserve Rule Change

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Turkey on Friday ended a mechanism meant to encourage commercial banks to boost credit, reversing a key policy of former Treasury and Finance Minister Berat Albayrak.

The central bank ended the rule, which allowed lenders to park smaller amounts with the monetary authority than otherwise required provided they met officially designated lending targets, according to a decree published in the Official Gazette.

Friday’s regulation raised so-called “required reserves” -- lira and foreign exchange that lenders must hold at the central bank -- for certain maturities.

Turkey Nixes Albayrak Lending Incentive With Reserve Rule Change

With the changes, required reserves of the banking system are expected to increase by approximately 12.3 billion liras and $5.7 billion in foreign currencies and gold, provided the reserve option utilization rates remain unchanged. Intermediation costs will decrease as a result of the changes in commission and remuneration rates for lira-denominated required reserves, which was set at zero and 12%, respectively.

The decision cements efforts by Turkey’s new economic managers to reverse the interventionist policies spearheaded by Albayrak, who resigned earlier this month. Policy makers, including new central bank Governor Naci Agbal, are mindful that their market-friendly U-turn could initially mean more volatility for the lira. Still, their pledge to return to market orthodoxy has generally been welcomed by investors.

The lira has gained more than 4% against a basket of currencies since President Recep Tayyip Erdogan sacked the previous central bank governor Nov. 7. Foreign investors put more than $1 billion into Turkish stocks and government debt during the following two weeks, according to most recent official data.

©2020 Bloomberg L.P.

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