Turkey Weighs Tweak to Fringe Central Bank Tool to Support Lira

(Bloomberg) -- Turkey may cut the maximum amount of foreign exchange that commercial lenders can set aside as part of their mandatory lira reserves at the central bank, a move that’s likely to prop up the currency.

The upper limit for the so-called foreign-exchange maintenance facility under the central bank’s Reserve Options Mechanism is likely to be lowered from its current level of 30%, an official with direct knowledge of the matter said, asking not to be identified because the plans aren’t public.

The instrument allows commercial lenders to use their own foreign-currency holdings instead of lira to meet their reserve requirements.

The mechanism helps credit growth by freeing up liras. By lowering the limit, Turkey stands to tighten the supply of liras in the financial system while freeing up lenders’ access to foreign currency.

A central bank spokesman in Ankara declined to comment.

--With assistance from Ugur Yilmaz and Constantine Courcoulas.

To contact the reporter on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Heather Harris at hharris5@bloomberg.net, Paul Abelsky

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