(Bloomberg) -- Turkey's central bank revised some reserve requirement rules for banks in an effort to keep loan growth in check and encourage conversion of foreign exchange into the local currency.
The monetary authority said banks' local currency-denominated commercial cash lending -- excluding that which involves small and medium-sized enterprises, and export and agricultural loans -- will be subject to reserve requirements.
Commercial loans that have been extended in four-week periods since April 1 shall be subject to a reserve requirement of 10%, the central bank said in a statement on Saturday.
It also raised reserve requirements for personal accounts at lenders that did not meet the target of converting foreign currency-denominated accounts into lira. The monetary authority increased the ratio for foreign currency deposits by 500 basis points for banks with a conversion rate below 5%, and 300 basis points for those with a rate of between 5% and 10%.
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The changes will be effective from the calculation date of May 27, with the maintenance period starting on June 10, it said.
The revision of reserve requirements came after the central bank kept its benchmark rate at 14% for a fourth straight month despite inflation exceeding 60%. Rather than adding to Turkey's rate buffer, authorities are leaning more heavily on other policies that could bring in more hard currency and boost the central bank's reserves.
Deepening trade imbalances and the world's most negative borrowing costs when adjusted for prices have made the $800 billion economy increasingly vulnerable at a time of intensifying global tightening led by the U.S. Federal Reserve.
The Monetary Policy Committee said in its April rate decision text that it is weighing the prospect of growth in long-term investment loans against the need to keep the current-account in check. “In this context, the committee decided to strengthen the macroprudential policy set,” the bank said, signalling a possible move on reserve requirements.
Opting for unorthodox policies has limited the central bank's coffers though so far this year. The nation's gross reserves excluding gold holdings stood at about $69 billion in the week ending April 15, down about 5% from the end of 2021.
Other points in the central bank's reserve requirement decision include:
- For banks with a loan growth rate of above 20% as of May 31, compared with Dec. 31, 2021, the difference between their outstanding loan balances on these dates will be subject to reserve requirements of 20% for a period of six months, it said.
- The RRRs of financing companies, which were 0%, will now be set at the same level as banks, and their liabilities to domestic lenders have been included in the scope of reserve requirements, the central bank said.
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