Turkey on Tuesday revised its regulations to deter savers from rushing into foreign currencies and ease pressure on the lira after ending a strong cycle of interest rate hikes this month.
The central bank is raising the cost of foreign currency deposits for commercial lenders, while at the same time easing mandatory reserve requirements on some foreign exchange-linked accounts, which are part of a government-backed savings program aimed at supporting the lira.
Policymakers are also preparing additional measures to encourage more local currency saving and ensure interest rates trickle down to the economy after the Turkish central bank ended its monetary tightening cycle with a final rate hike to 45% last week. There was little change in the lira's exchange rate in early trading on Tuesday, after it lost nearly 3% of its value against the dollar this month.
The latest steps come in the wake of a drop in interest rates offered on Turkish lira deposits, which could prompt savers in the country to look for alternatives as inflation accelerates to more than 70% in the coming months.
Domestic lenders will now have to allocate more money to deposits and participation funds denominated in foreign currency, the central bank said on its website. In addition to the current regulations on required reserves, an additional percentage that must be held in lira for these accounts has been doubled to 8%.
In addition, the Monetary Authority reduced the requirements for savings accounts linked to foreign currencies for a period of up to six months, reducing their mandatory percentage to 25% from 30%. Under this mechanism, lira depositors can hedge against currency losses by obtaining state-guaranteed compensation for any decline in value that exceeds interest on accounts.
These measures will partially offset each other, according to economists at QNB Finansbank, who estimate that the net effect will be to withdraw some excess liquidity from the system.
(1 US Dollar = 30.36 Turkish lira)