ANKARA: Turkey’s central bank said it had increased commercial banks’ reserve requirement rates for foreign exchange deposits, extending policy changes aimed at discouraging locals from converting their lira savings to other currencies.
Turks have flocked to foreign currencies since a currency crisis last year eroded confidence in the lira. Foreign exchange deposits and funds, including precious metals, of Turkish individuals and institutions combined rose to a record high of US$182bil as May 17.
The central bank said it had raised the reserve requirement ratios for forex deposits and participation funds by 200 basis points for all maturity brackets, saying the move would withdraw US$4.2bil of forex liquidity from the market.
Investors have also been concerned about the central bank’s ability to defend the lira in the case of another sharp decline, given its reserves have fallen significantly in recent months.
The lira has fallen some 37% since the beginning of 2018, driving the economy into a recession. The central bank’s move helped the currency strengthen briefly yesterday.
The latest move is aimed at discouraging dollarisation and makes it more costly for banks to keep forex deposits, one trader said.
“It aims to make it more attractive for banks to collect lira deposits,” the trader said. “As a secondary effect, it is a decision that will increase the central bank’s reserves.”
Ankara has taken several steps to discourage Turks from turning to forex deposits, such as this month raising a tax on some foreign exchange sales to 0.1% from zero.
The BDDK banking watchdog last week imposed a one-day settlement delay on forex purchases of more than US$100,000 by individuals.
The lira stood at 6.0550 against the US dollar at 0807 GMT, having earlier firmed as much as 6.0370.
It was around 6.0635 before the central bank’s announcement. — Reuters