Turkish Central Bank takes reserve requirements step to shore up lira

ANKARA/ISTANBUL

The Turkish Central Bank moved to shore up the lira on May 7 after the currency fell to record lows against the dollar, lowering the upper limit for foreign exchange, which banks can use for their reserve requirements.

The lira, which has weakened 11 percent against the United States currency this year, trimmed its losses after the announcement, rebounding to 4.25 against the dollar from a morning low of 4.2715, according to Reuters data.

It hit a low of 4.2901 on May 4.

Concerns about the Central Bank’s ability to rein in double-digit inflation have driven the lira losses, with snap elections called for June 24 generating political uncertainty.

“The upper limit for the FX maintenance facility within the reserve options mechanism has been lowered to 45 percent from 55 percent,” the Central Bank said.

Some 6.4 billion lira ($1.5 billion) of liquidity will be withdrawn from the market and approximately 2.2 billion U.S. dollars of liquidity will be provided to banks, it said.

The reserve options mechanism allows banks to keep a certain ratio of their Turkish lira reserve requirements in foreign exchange and/or gold.

Last year, one U.S. dollar traded for 3.65 Turkish liras on average, compared with 3.02 in 2016.