Turkey is increasing foreign exchange reserve requirements to push lira holdings


This file photo from January 24, 2014 shows the headquarters of the Turkish Central Bank in Ankara, Turkey. REUTERS / Umit Bektas

ISTANBUL, July 1 (Reuters) – Turkey’s central bank said Thursday it would raise required reserve ratios for foreign currency deposits and took steps to bolster lira held in the banking system to curb the Turkish-held foreign exchange market near record highs.

The bank said the July 19 revisions were aimed at improving the effectiveness of its monetary policy and lowering inflation, which hovered around 17% due in part to the weakness of the Turkish lira.

To boost local currency deposits, the central bank said it would offer higher reimbursement rates for required lira reserves. Some foreign currency deposits converted into lira are also exempt from reserve requirements.

Enver Erkan, chief economist at Tera Yatirim, said the revisions, including the higher fee rate, were aimed at getting banks to hold more deposits in lira.

“But the conversion from foreign currency deposits to lira is not the responsibility of the banks, but of the depositors. ” he said.

Turks have flocked to hard currencies in recent years to hedge against double-digit inflation and a ramshackle lira, which has lost around 14% this year after losing 20% ​​in 2020.

Locally held foreign exchange and precious metals hit a record high of over $ 236 billion in January, but have fallen slightly to $ 226 billion on June 18.


The required reserve revisions would increase the Turkish lira and foreign currency required reserves by 13.2 billion liras ($ 1.52 billion) and $ 2.7 billion, respectively, the bank said. Continue reading

The remuneration rate for required lira reserves would be increased on June 25th depending on the ratio of foreign currency deposits to total deposits and the ratio of lira deposits converted from foreign currencies to the total amount of foreign currency deposits.

It provides for four levels, depending on the two conditions, with the remuneration rates between 13.5% and 19%.

The required reserve ratio for deposits in foreign currency up to one year has been increased from 19% to 21%, while the reserve ratio for deposits with a maturity of one year or more has been increased from 13% to 15%, as the Official Journal shows.

A facility that allowed 20% of foreign exchange reserve requirements to be held in Turkish lira will be reduced to 10% by the calculation date of September 17th and then completely canceled, as the Official Journal also showed.

Reporting by Can Sezer and Ali Kucukgocmen; Editing by Shri Navratnam and Jonathan Spicer

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