Turkey Ties Bank Reserve Requirements To Loan Growth, Lira Sinks

Turkey Ties Bank Reserve Requirements To Loan Growth, Lira Sinks

The Turkish lira abruptly dove on Monday to its weakest against the dollar since July amid an announcement from the central bank. From here on out, banks’ required reserves will be tied to loan growth, apparently.

For banks whose loan growth is between 10%-20%, required reserve ratios for lira liabilities in all maturity brackets (with some exclusions) will be set at 2%, while the ratio for other banks is unchanged.

This is expected to release nearly $3 billion in liquidity to the market, according to a statement.

The currency sank more than 1% after the headlines crossed.

Basically, they’re trying to juice lending amid a worsening economic outlook – or at least that’s what it looks like. Instead of insurance, required reserve ratios are now a reward for pumping credit into the economy in that the faster you lend, the less you have to hold.

This comes just days after news that CBT sent nearly $4 billion to the Treasury in July, allowing the government to post a surplus. In other words, the central bank is plugging budget holes for President Erdogan as inflation-adjusted tax revenues shrink.

The central bank, under new leadership following Erdogan’s brazen move to oust Murat Cetinkaya last month, delivered a massive rate cut on July 25, in deference to NATO’s “favorite” autocrat.

Earlier this month, Erdogan effectively purged the central bank, dismissing a handful of officials including chief economist, Hakan Kara.


 

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