Tight monetary policy to continue: Karahan

ISTANBUL

Tight monetary policy will continue, Central Bank Governor Fatih Karahan has said, a day after the bank kept its policy rate, the one-week repo auction rate, unchanged at 50 percent.

Speaking at the Arab Banking Summit, Karahan reiterated that the headline inflation is expected to decline sharply in June.

“Monetary tightening will also continue to support the growth of the banking sector,” the governor added.

Despite the environment of high inflation, the banking sector remains profitable, and it will be among the sectors which benefits from disinflation, Karahan said, adding that Turkish Lira deposits have been on the rise.

The share of lira deposits in total deposits increased from 31 percent in August last year to 45 percent, according to Karahan.

Turkish lenders will need to take on more burden managing their balance sheets as policy normalization takes place, he said.

On May 23, the Central Bank increased the reserve requirement ratios for lira deposits and FX-protected deposits (KKM accounts).

Accordingly, the ratio for short-term lira deposits were hiked from 8 percent to 12 percent, while it was set at 8 percent for long-term lira deposits.

The ratios for short-term and long-term KKMs were lifted from 25 percent to 33 percent and from 10 percent to 22 percent, respectively.

The bank also introduced a monthly growth limit of 2 percent for foreign currency loans.

“It was decided that the required Turkish Lira reserves amounting to loans exceeding the limit will be blocked for one year,” the bank said.