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Turkish Central Bank Takes Step to Provide Liquidity

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Central Bank provides $1.4 billion of dollar liquidity to banks under change in its reserve mechanism.

The Central Bank on Monday lowered the upper limit for forex maintenance facility, a move that will provide approximately $1.4 billion in liquidity to Turkey’s financial system.

In a statement, the bank said the upper limit for forex maintenance facility had been lowered to 55 percent from 60 percent and all tranches were also reduced by 5 points.

The tranches were reduced by 5 percentage points and some 5.3 billion liras ($1.372 billion) of lira liquidity would be withdrawn from the market after the change in its reserve requirements, it said.

“In the recent period, the markets have witnessed unsound price formations that are inconsistent with economic fundamentals.

“Taking this development into account, with a view to supporting price stability and financial stability, the upper limit and the tranches for the FX maintenance facility within the reserve options mechanism have been revised.”

The rediscount credits repayment (around $5 billion) for export and foreign exchange earning services, which will be due by Feb. 1 of next year, can be made in Turkish liras at 3.70 for dollars, 4.8 for euros and 4.8 for sterling, provided they are paid at maturity, the bank also said.

“In case the exchange rate on the date of credit extension is higher than these rates, the exchange rate on the date of credit extension will be applicable,” it added.

The Central Bank’s move comes after the Turkish Lira slipped to a historic low against the U.S. dollar, nearly to 3.90 on Nov. 4, amid growing expectations that Federal Reserve to raise interest rates next month and tighten further in 2018.

The lira gained against the dollar after the move, trading 3.8626 by 0806 GMT.

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 aims to support 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.

 

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