Turkey’s central bank raised the reserve requirement for banks’ deposits in foreign exchange for the third time this year “to support financial stability” in a move it said will withdraw around US$2.1 billion of foreign exchange liquidity from the market.
The Central Bank of the Republic of Turkey (CBRT) raised its reserve requirement ratio by 100 basis points for all maturities and for participation funds and has now raised the ratio by a total of 400 points this year following increases on May 9 and May 27.
In addition, CBRT said it was lowering the remuneration rate for all US dollar-denominated required reserves, reserve options and free reserves held at the central bank by 100 basis points to 1.0 percent.
The exchange rate of Turkey’s lira firmed further today and was trading at 5.54 to the U.S. dollar, continuing its steady rise since May 10. But compared with the start of this year the lira is still down 4.7 percent and down 31.6 percent since the start of 2018.
In August last year the lira tumbled, boosting inflation and triggering a sharp 625 point rate hike by CBRT in September. The central bank only began to unwind its tight policy stance on July 25 following the sacking of the previous central bank governor by President Recep Tayyip Erdogan.
In his first press conference after the benchmark repo rate was cut by 425 basis points to 19.75 percent, CBRT Governor Murat Uysal on July 31 said the firing of his predecessor Murat Cetinkaya was done in line with existing legislation and the central bank was independent in its decisions on how to achieve the inflation objective, which is set together with the government.
According to press reports, Uysal signaled further rate cuts by saying data was showing a lot of room for manoeuvre in monetary policy.
Uysal lowered the central bank’s year-end inflation forecast to 13.9 percent from a previous 14.6 percent and expects inflation to decline to 8.2 percent by the end of 2020 before reaching the target of 5.0 percent by the end of 2021.
Turkey’s inflation rate has been decelerating since October last year though it rose to 16.65 percent in July from 15.72 percent in June.
