Turkish Central Bank lowers reserve option coefficients

ANKARA-Anadolu Agency

The Central Bank has lowered its reserve option coefficient, a move that will provide approximately $620 million in liquidity to Turkey’s financial system.
According to a statement from the Bank issued on Oct. 31, the coefficients for the second, third and fourth tranches of the foreign exchange facility of the Reserve Option Mechanism have been decreased by 0.2 points.        

“Should the reserve option utilization rates remain unchanged, approximately $620 million in liquidity will be provided to the financial system with these changes,” it said.        

The increase in foreign exchange reserve requirement ratios will add over $2.9 billion in liquidity to the Turkish financial system, the statement added.         

The Bank also said it had raised the upper limit of foreign exchange reserve requirements to 4 points from 3 points to facilitate the foreign exchange liquidity management of banks.        

“In addition, upper limit of FX [foreign exchange] reserve requirements that can be maintained as average has been increased to 4 points from 3 points in order to facilitate FX liquidity management of banks,” it added.        

“With this amendment, banks will be able to freely use an additional amount of approximately 2.9 billion U.S. dollars to meet their FX liquidity needs within the maintenance period,” the statement said.        

The Central Bank’s move comes after the Turkish Lira slipped to a historic low against the U.S. dollar, which dropped to 3.1270 on Oct. 28, amid growing expectations that the U.S. Federal Reserve would raise interest rates in December.         

According to a Central Bank report, the Reserve Options Mechanism is a tool unique to the Central Bank that holds foreign exchange or gold reserves in increasing tranches in place of lira reserve requirements of Turkish banks. It is aimed at supporting the country’s foreign exchange reserve management of the banking system and limit adverse effects of excess capital flow volatility on Turkey’s macroeconomic and financial stability.