Turkish Central Bank hikes forex reserve requirement ratios

ANKARA - Reuters

Turkey’s Central Bank raised foreign exchange reserve requirement ratios on Jan. 3, citing the need to support financial stability amid volatility in global markets.

With the lira currency trading at record lows against the dollar, the changes are intended to ensure banks and other financial institutions can meet forex liabilities and to encourage them to shift foreign borrowing to longer maturities.

Banks will now be required to keep 18 percent of their foreign currency liabilities of up to a year’s maturity on hand to provision for potential losses, an increase from 13 percent. Reserve requirements for similar liabilities of between one and two years’ maturity rise to 13 percent from 11 percent. “With a view to supporting financial stability and by taking into account the latest developments in global markets, the reserve requirement ratios of foreign exchange-denominated liabilities of banks and financing companies are revised in order to encourage the extension of maturities of non-core liabilities,” the Central bank said in a statement.

It also raised the ratio for maturities of between three and five years to 7 percent from 6 percent, but cut reserve requirements for maturities of between two and three years to 8 percent from 11 percent.

Turkey’s lira slumped to record lows last month as expectations U.S. interest rates will start to rise sucked money out of emerging markets, prompting a series of moves by the Central Bank to back the currency.