Turkish central bank hikes reserve ratio for short-term forex borrowing

ISTANBUL - Reuters

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Turkey’s Central Bank on Aug. 29 raised the reserve ratio on lenders’ short-term hard currency borrowings to encourage the banks to borrow longer-term and bring more stability to a domestic currency market that has been subject to big swings.

The bank also said it raised limits on foreign exchange transactions that banks can do with the Central Bank to increase foreign exchange liquidity in the market as it looks to shore up the lira with one eye on a potential U.S. interest rate hike.

The lira was quoted at 2.92 per dollar on Aug. 28 evening, weakening from 2.90 on Aug. 27 evening.

The lira has fallen to a succession of record lows against the dollar in recent months, under pressure along with other emerging markets from with alarm about China’s economy and the prospect of the first U.S. interest rate hike in nearly a decade. The Federal Reserve said on Aug. 28 this could happen as soon as next month, though the timing would hinge on the level of anxiety in financial markets.

The interest rate paid on lira-denominated reserves that lenders hold with Turkey’s Central Bank will rise by 150 basis points by Dec. 1, the bank also said on Aug. 29.

It had previously announced it would raise this rate in line with Fed interest rate hikes.