Turkey changes banking guidelines as lira slips

A money changer counts Turkish lira bills at a currency exchange office in central Istanbul, Turkey August 21, 2015. REUTERS/Murad Sezer

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  • Banks asked to make FX trades between 10 a.m. and 4 p.m.
  • Latest decision stabilizes lira after end-2021 crisis
  • Banks also received guidance on new reserve requirements

ISTANBUL, May 10 (Reuters) – Turkish authorities have asked banks to conduct foreign exchange transactions with corporate clients between 10 a.m. (0700 GMT) and 4 p.m. (1300 GMT) when the market is most liquid to avoid sharp fluctuations prices, said three bankers. said Tuesday.

The step came as the Turkish lira slipped more than 3% in four sessions to hit lows last seen in mid-December, when it was plagued by a currency crisis that rocked the emerging market economy and driving up inflation.

The central bank and financial regulator BDDK have in recent days asked banks to trade forex during the market’s busiest six hours, the three bankers told Reuters, speaking on condition of anonymity.

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Separately, the central bank has sent lenders a document, obtained by Reuters, clarifying how to apply reserve requirements to loans after the new regulations were announced last month.

The 50-page document was sent on Friday. The April 23 announcement was aimed at reining in some lending after a recent sharp rise, and bankers separately said it had pushed up overnight rates and confused lenders.

The central bank and the BDDK declined to comment.

The moves mark the authorities’ latest effort to stabilize the lira, which fell 44% against the dollar in 2021 and fell another 13% this year.

Under pressure from President Tayyip Erdogan, the central bank is determined not to raise its key rate by 14%, despite annual inflation hitting 70% last month.

“The central bank is fighting a serious battle for the (read), but the cost of its stability (…) is increasing day by day,” said Ipek Ozkardeskaya of Swissquote.

“Of course, it’s possible there could be a ‘crash’ in the hours of low liquidity,” she said of the request to the banks. “Let’s see how long they can go on.”

EYES ON THE ELECTIONS

A series of unorthodox rate cuts late last year sparked the crisis. In response, the authorities unveiled a lira deposit protection scheme and costly foreign exchange market interventions.

Rate cuts pushed commercial loan growth to about 50% at the end of last month, according to Turkey Data Monitor.

Erdogan – facing a tough election in the coming year – said a boom in lending, exports and a reversal of large current account deficits should drive prices down.

Economists are skeptical and divided on whether the central bank will hold or raise rates this year, according to a Reuters poll.

The bank’s rule change in April applied reserve requirements to the assets of lenders’ balance sheets, rather than liabilities. It aimed to encourage job-creating loans and strengthen financial stability, he said. Read more

Bankers told Reuters that overnight lending rates later rose to 35-40%, but the data suggests companies did not borrow as high.

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Additional reporting by Ece Toksabay in Ankara and Daren Butler in Istanbul; Editing by Jan Harvey and Raissa Kasolowsky

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