By Peter Bergman (MoneyAmped.com)
To strengthen the national economy, the central bank of Turkey has implemented a series of steps to increase the percentage of lira deposits within the country’s financial system. This move comes as part of the bank’s ongoing efforts to bolster the stability and resilience of the Turkish financial sector.
Creditors’ Expenses Will Be Increased
In a recent development, new regulations published in the Official Gazette have brought about significant changes that are set to impact commercial lenders offering accounts denominated in hard currency or linked to foreign exchange rates. These changes are expected to result in increased costs for such lenders.
The move is part of ongoing efforts to regulate and streamline the financial sector, ensuring excellent stability and transparency. With these new regulations in place, commercial lenders will need to reassess their strategies and adapt to the evolving landscape of the industry.
In a recent development, financial institutions have been mandated to maintain a more significant proportion of reserves at the monetary authority for FX-linked lira deposits provided to customers. This new requirement aims to enhance the stability and security of the banking sector. The surge in expenses is expected to deter commercial lenders from endorsing the accounts commonly referred to as KKM, according to recent reports.
The Desire to Increase the Level of Savings in the National Currency
In a recent development, the central bank has announced a new regulation requiring lenders to allocate extra lira reserves for foreign exchange (FX) accounts. This strategic move is aimed at promoting the shift towards local currency savings. By implementing this measure, the central bank hopes to encourage individuals and businesses to prioritize saving in the domestic currency, thereby strengthening the local economy.
This initiative reflects the bank’s commitment to fostering financial stability and promoting the use of the national currency. To encourage more Turkish citizens to move away from foreign currency savings, the government has introduced a series of regulatory reforms. These changes aim to promote the use of local currency and boost the country’s economy.
In a move aimed at bolstering the national currency, the Turkish government has announced an increase in reserve requirements expected to absorb approximately 350 billion liras ($8.8 billion) in liquidity. This decision is part of a broader strategy to support the lira and stabilize the country’s financial markets.
By tightening reserve requirements, the government hopes to reduce the supply of liras in circulation, thereby increasing their value. This move comes amidst ongoing efforts to address economic challenges and maintain stability in Turkey.
The following is an overview of the recently implemented central bank rules:
- The reserve requirement ratio for KKM accounts with a maturity period exceeding six months has been increased from 25% to 30%.
- The duration threshold for one year or more has been increased from 5% to 10%.
- The reserve requirement ratios for foreign exchange deposits have been augmented by one percentage point across all maturity periods.
- The financial institution has recently introduced a supplementary reserve requirement ratio of 4% specifically for foreign exchange deposits denominated in the local currency.
The accounts held by KKM currently amount to approximately $110 billion, representing a significant proportion of the total deposits within the banking system, accounting for just under one-fourth of the overall amount. The economic officials recently appointed in Turkey have been actively unwinding the existing program.
New Regulations and Measures Can Be Expected in the Future
The Monetary Policy Committee of the central bank has expressed its intention to implement further measures to augment the proportion of lira savings after the recent escalation in interest rates.
The forthcoming event on Thursday will witness Central Bank Governor Hafize Gaye Erkan presenting a comprehensive analysis of the inflation trajectory over the next two years. It is widely anticipated that there will be a notable upward revision in the inflation projections for the latter part of this year and 2024.
