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31 December 2019
REGULATION

TCMB revises FX reserve requirement practise and ratios

The move is seen as largely intended to boost official reserves and follows the International Monetary Fund’s warning to policymakers that their external buffers remain low and foreign financing needs are high.

Türkiye Cumhuriyet Merkez Bankası/Bloomberg

by Kudakwashe Muzoriwa

Türkiye Cumhuriyet Merkez Bankası (TCMB) has raised reserve requirement ratios for foreign currency deposits and participation funds by 200 basis points in a step that will wipe up foreign currency liquidity from the market.

The central bank stated that as a result of these revisions, approximately $2.9 billion of foreign currency liquidity will be withdrawn from the market.

Reserve requirement ratios for foreign currency deposits at notice, with no fixed term and for maturities ranging from one month to a year, were raised to 19 per cent from 17 per cent. Similarly, ratios were raised to 15 per cent from 13 per cent for foreign currency deposits dated more than a year.

Bloomberg reported that the Turkish Treasury and Finance Minister previously hinted that policymakers might make tweaks to the latest regulations on reserve requirements by the end of the year, in a meeting with economists last week.

The central bank said it will keep ratios unchanged for banks that comply with lira real loan growth conditions to ensure that such banks are not affected by the increase. In August 2019, TCMB linked the amount of cash banks must put aside as reserves with how much credit they extend, as policymakers have been striving to boost the economy through faster lending growth.

The Turkish monetary authority came under criticism earlier in 2019 for adopting a foreign-exchange swap mechanism that allowed it to boost reserves with borrowed money.


RELATED STORIES: Türkiye Cumhuriyet Merkez Bankası International Monetary Fund


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