Turkey Tweaks Rules for Banks in Boost for Official Reserves

(Bloomberg) -- The Turkish central bank raised reserve requirement ratios for foreign currency deposits and participation funds by 200 basis points in a step that will mop up foreign currency liquidity from the market.

Reserve requirement ratios for foreign currency deposits at notice, with no fixed term and for maturities ranging from one month to a year, were raised to 19% from 17%, according to a ruling published by the nation’s official gazette on Saturday. Ratios were raised to 15% from 13% for foreign currency deposits dated more than a year.

Treasury and Finance Minister Berat Albayrak previously hinted that policy makers might make tweaks to the latest regulations on reserve requirements by the end of the year, in a meeting with economists last week. About $2.9 billion of foreign-currency liquidity is expected to be withdrawn from the market as a result of the measure, according to a central bank statement.

The central bank aims to support lira liquidity and wants to take advantage of a positive environment to increase its reserves, Ozlem Derici Sengul, founder of Spinn Consulting in Istanbul, said by phone. “The bank has already been trying to support the lira through the swap market. Meanwhile, the Treasury has a high amount of redemptions coming up early in 2020. So the reserve requirement ratio hike serves both liquidity and reserve purposes.”

The central bank said it will keep ratios unchanged for banks that comply with lira real loan growth conditions to ensure that such banks are not affected by the increase. In August, it linked the amount of cash banks must put aside as reserves with how much credit they extend, as policy makers have been striving to boost the economy through faster lending growth.

The move is seen as largely intended to boost official reserves and comes a day after the IMF warned policy makers that their external buffers remain low and foreign financing needs are high. The monetary authority came under criticism earlier this year for adopting a foreign-exchange swap mechanism that allowed it to boost reserves with borrowed money. Total gross reserves stood at $78.3 billion as of Dec. 20.

To contact the reporter on this story: Inci Ozbek in Istanbul at iozbek2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, Taylan Bilgic, James Amott

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