- The lira has fallen 28% this year
- Most of the decline has occurred since last month’s election
- Finmin and new central bank governor move towards orthodox policies
ANKARA (Reuters) – The Turkish lira fell 3% against the dollar on Monday as it took steps to simplify policy, but officials and bankers said the central bank said it had stopped using its reserves. To support Lila.
The lira fell to 26.05 against the US dollar, above last week’s all-time low of 25.74. It narrowed the loss to $25.84 by 0945 GMT.
It’s down 28% so far this year, but mostly after President Tayyip Erdogan’s re-election in late May, he’s starting to roll back years of unconventional economic policies, including interest rate cuts, despite soaring inflation. .
Two major steps have been taken in the last few days. The central bank, led by new governor Hafizeh Gay Erkann, on Thursday raised interest rates by 650 basis points to 15%, a sharp tightening that fell short of market expectations.
And on Sunday, the central bank rescinded some of the dozens of rules and regulations it has adopted since 2021 that were meant to encourage lira holdings, leaving significant controls over the debt, credit and foreign exchange markets. I started.
The use of central bank reserves to protect the value of the lira before the elections pushed reserves to a historic low in early June, with net reserves at minus $5.7 billion. Two weeks later, I recovered.
The central bank said over the weekend that the weekend’s simplification measures were aimed at liberating markets and ensuring stability, with a senior official saying the central bank had adjusted its currency policy.
“The central bank has not intervened in any way on the exchange rate, including selling foreign currencies, since last week’s interest rate decision,” he said.
“The numbers are entirely determined by the free market. So the reserves are not used, and the period of increasing reserves has begun,” he added.
His comments echoed the view of bankers that the central bank has “completely stopped” the use of foreign exchange reserves. “The value of the lira is no longer protected by reserves,” said one trader.
“The CBRT (Turkey Central Bank) appears to have completely abandoned the use of foreign exchange reserves in the foreign exchange market,” said a senior banker, who showed an increase of $1 billion to $2 billion in foreign exchange positions per day. I added that there is.
central bank action
Under new central bank measures announced over the weekend, the security maintenance rate that banks are required to allocate to foreign currency deposits has been reduced from 10% to 5%.
Securities that banks must hold now range from 3% to 12% of lira deposits, compared with 3% to 17% before.
Under the new regulation, banks with less than 57% of their total lira deposits will be required to hold an additional 7 points of securities, compared to the previous 7 point additional holdings applied to banks with less than 60% of their lira deposits. It is expected to increase by % points.
“The ratio was gradually lowered, allowing banks to adjust their positions slowly and not trigger a sharp rise in interest rates,” said Ember Elkann, the newspaper’s chief economist. “It will give us room and time to adjust our portfolio.” Dynamik Yatilim.
“This is an encouraging positive development for the sector.”
The Istanbul Exchange bank index (.XBANK) rose about 4% on the move, with other major indexes up more than 2%.
After the easing of measures to lure banks into lira deposits, deposit rates at some banks have started to fall from the 40-45% range and are expected to continue, bankers said. rice field.
Additional reporting by Daren Butler, Canan Sevgili, and Ebru Tuncay. By Jonathan Spicer.Editing: Emelia Sitor-Matterise
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