Turkey central bank seeks to rouse credit growth with cut in reserve ratios

A money changer

A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul. Although the central bank hasn’t disclosed how much in funds will be unlocked, governor Murat Cetinkaya has recently said that steps to manage liquidity in support of financial stability wouldn’t necessarily mark a shift in its monetary policy.

Turkey cut the amount of cash lenders are required to hold in reserves for the first time in six months as the central bank tries to rouse credit growth without signalling a more drastic change in its tight policy stance. With its crisis-level monetary setting on hold for three consecutive meetings, the central bank announced over the weekend that it’s lowering reserve-ratio requirements. QNB Finansbank estimates the move will release 3.3bn liras ($623mn) and $2.3bn into the financial system. Although the central bank hasn’t disclosed how much in funds will be unlocked, governor Murat Cetinkaya has recently said that steps to manage liquidity in support of financial stability wouldn’t necessarily mark a shift in its monetary policy.


The relatively small amount of cash covered by the decision suggests the impact on monetary conditions will be limited, according to QNB Finansbank analysts Erkin Isik and Deniz Gokce. “But it will support the continuation of a moderate pickup trend lately observed in loan growth,” they said in an emailed report. Lira reserve-requirement ratios have been reduced by 100 basis points for deposits and participation funds with maturities of up to a year and for other liabilities with maturities up to and including three years. Ratios were cut by 50 basis points for all other liabilities, the central bank said in a statement on Saturday. Lenders will also be able to hold 10% of their required reserves in scrap gold, rather than 5%, while the total amount of loans extended by Turkish banks stood at 2.4tn liras as of December.


Turkey last lowered the reserve-requirement ratios for lira and foreign-exchange liabilities in August, when its currency was in free fall. Cetinkaya said last week that the central bank’s use of the tool helped ease the extreme market volatility the country experienced last year. While the latest move won’t have a “sizeable” impact on the lira, Istanbul-based brokerage IS Investment said the central bank’s liquidity adjustments should be monitored closely for their implications on the direction of monetary policy. “If further steps are taken to ease liquidity, that might hurt the tight stance of the bank and currency,” IS Investment analysts said in a report.

Sources and photo-credits: Gulf Times, Bloomberg