The Turkish Central Bank on Aug. 20 kept its one-week repo rate- also known as the bank’s policy rate- constant at 8.25%, holding it unchanged for the third straight month.
The decision was announced in a statement following the bank’s eighth Monetary Policy Committee (MCP) meeting of 2020.
“The gradual normalization of pandemic-specific financial measures and recent tightening steps taken in liquidity management are judged to support macrofinancial stability,” said the bank statement.
Saying that uncertainties over domestic and external demand conditions remain significant, the bank stressed that it will continue with liquidity measures.
In recent weeks the bank has taken several steps to tighten liquidity conditions to support the Turkish lira such as halving the overnight borrowing limits of lenders and cutting liquidity limits offered to primary dealers to zero.
Underlining that the economic recovery which started in May is picking up pace, the bank said the level of the real exchange rate will support the current account balance in the coming days.
On Friday, Anadolu Agency’s Finance Desk survey of 22 economists forecast the bank would hold interest rates steady, with just four predicting a rise, ranging between 0.25 and 1.75 percentage points
At the committee’s last two meetings held in June and July, the bank kept its one-week repo rate at 8.25%, following a gradual cut of 375 basis points from 12% over the preceding months.
Last year, in eight meetings, the bank cut the rate by a total of 1,200 basis points, from 24%.
After holding eight meetings last year, this year the bank boosted the number of MPC meetings to 12.
Reserve requirement ratios raised
The Turkish Central Bank on Aug. 20 also raised the reserve requirement ratios for banks fulfilling real credit growth conditions in a bid to withdraw liquidity from the markets.
The Central Bank “decided to raise FX [foreign exchange] reserve requirement ratios for banks fulfilling real credit growth conditions by 700 basis points for precious metal deposit accounts and by 200 basis points for all other FX liabilities for all maturity brackets,” the bank said in a statement.
Under the move, Turkish lira reserve requirement ratios were raised 200 basis points for all deposits and participation funds liabilities with a maturity of up to six months and other liabilities with a maturity up to one year, and by 150 basis points for other liabilities with a maturity of up to three years.
The move is expected to withdraw some 17 billion Turkish liras ($2.3 billion) and $8.5 billion of FX and gold liquidity from markets, the bank said.
Hurriyet Daily News