Turkey's Central Bank Unveils Measures to Boost Liquidity
August 29 2015 - 3:08PM
Dow Jones News
By Emre Peker
ISTANBUL--Turkey's central bank on Saturday unveiled measures to
bolster liquidity and help the country's commercial banks meet debt
repayments, as Turkish policy makers take steps to counter the
potential fallout from an anticipated U.S. Federal Reserve interest
rate rise this year.
The Ankara-based central bank said it would raise interest rates
paid on mandatory lira reserves commercial lenders park at the
national bank by a total 1.5 percentage points in three
installments on Sept. 1, Oct. 1 and Dec. 1. to help support core
financial obligations. It also more than doubled the cap on its
foreign-exchange transactions with Turkish banks to $50 billion to
boost liquidity and help local lenders repay international
borrowings.
Central bank Governor Erdem Basci said last month that he would
start shifting from unorthodox monetary policies, such as multiple
tools and interest rates, to a more simplified framework as global
central banks led by the Fed start to unwinding extraordinary
measures introduced since the global financial crisis.
The governor's push to simplify monetary policy comes as the
Turkish lira hovers near record lows, having sunk around 25%
against the dollar this year. The lira is the second worst
performing emerging market currency after the Brazilian real and
its weakness is derailing efforts to slow inflation to the official
5% target. Inflation has remained stubborn despite weaker energy
prices--a positive for Turkey because it imports almost all of its
oil and gas.
"Considering the current global and domestic circumstances, the
policies need to be tight for the Turkish lira, stabilizing for the
FX liquidity, and supportive for financial stability," the central
bank said in the minutes of its Aug. 18 meeting, published
Tuesday.
While the central bank grapples with global developments roiling
international markets, such as China's economic slowdown, it is
also buffeted by domestic political and security concerns, which
are hurting growth.
With the first hung parliament since 2002 failing to form a
coalition after June elections, the country heads to early
elections on Nov. 1 amid a backdrop of escalating violence between
Turkish security forces and Kurdish insurgents.
"Uncertainties in global markets and the weak course of consumer
and investor confidence add to the downside risks to growth for the
upcoming period," the central bankers said in the minutes of their
meeting.
Saturday's moves signal an effort to get ahead of the curve
before the Fed starts to normalize monetary policy.
Higher interest payments on lira reserve requirements will cut
intermediation costs and support core liabilities, policy makers
said. The measure is in line with a road-map unveiled Aug. 18 to
simplify Turkey's monetary stance, they added.
The central bank said the move to raise the capacity of its
foreign-exchange and bank notes market by about 130% to $50 billion
would help local lenders repay international borrowings.
Coupled with foreign-exchange deposit allocations,
foreign-currency and gold holdings parked at the central bank, and
cash at their international branches, the steps "will meet more
than the debt payments in the coming year," the policy makers
said.
In a third step tied to a broader effort to encourage long-term
deposits, the central bank said it increased mandatory reserve
requirements on short-term Islamic-law compliant participation
funds and foreign-exchange liabilities other than deposits.
The ratio rose to 25% from 20% for maturities up to a year, to
20% from 14% for up to two years, and to 15% from 8% for three-year
liabilities. Central bankers cut requirements for maturities longer
than five years to 5% from 6%.
"The published road map included measures to support the FX
liquidity and to provide incentives for core liabilities and
long-term borrowing," the central bank's Monetary Policy Committee
said after its August meeting. "The Committee stated that the past
measures on this front have already enhanced the resilience of the
economy and that additional measures may further bolster these
gains."
(END) Dow Jones Newswires
August 29, 2015 14:53 ET (18:53 GMT)
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