Turkish central bank raises reserve requirements on forex deposits

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Turkey’s central bank has raised reserve requirement rates for foreign exchange deposits at commercial banks, extending efforts to discourage locals from converting lira into other currencies.

Turks have flocked to foreign currencies since a lira crisis last year, with foreign exchange deposits and funds, including precious metals, held by Turkish individuals and institutions hitting a high of $182 billion on May 17.

The central bank said on Monday it had raised the reserve requirement ratios for forex deposits and participation funds by 200 basis points for all maturities to support stability.

The bank added that the move would lead to the withdrawal of $4.2 billion of forex liquidity from the market.

The latest move by the central bank 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.”

The lira has fallen some 37% since the beginning of 2018, driving the economy into recession. The central bank’s move helped the currency strengthen briefly on Monday.

The lira stood at 6.0600 against the dollar at 1010 GMT, having earlier firmed to 6.0370. It was around 6.0635 before the central bank’s announcement.

Investors have 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.

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