Turkey changes Forex rules, boosting central bank reserves

Turkey raised the the amount of foreign exchange that lenders must hold at its central bank, a move which is expected to boost the nation’s foreign reserves by around $9.2 billion, Bloomberg reported on Saturday. 

The foreign exchange reserve requirement ratios have been raised by 300 basis points for all foreign-currency deposits regardless of their maturities, Bloomberg reported.

The central bank said the rule changes are part of a normalisation policy after it had provided additional hard currency to financial markets in March to mitigate the impact of the COVID-19 pandemic.

The central bank’s foreign reserves have dwindled significantly since last year, when authorities began borrowing foreign currency from commercial lenders through swap agreements. Turkey’s state-owned lenders have also been selling dollars to support the lira, which lost about 13 percent of its value this year.

Turkey’s gross reserves fell from more than $105 billion at the beginning of the year to just over $90 billion as of last week, Bloomberg reported.

The International Monetary Fund (IMF)’s Global Financial Stability update released in late June revealed that Turkey was below the reserve adequacy limit.

Turkey has relatively high average external financing requirements but low reserves as a percentage of reserve adequacy, according to a graph in the IMF’s update, putting the country below the reserve adequacy limit on a rough par with others such as Egypt, Chile, and South Africa.

"When we consider the components of reserve adequacy and foreign financing requirements together, it is seen that our country has been struggling with foreign currency shortage due to insufficient central bank reserves and high outsourcing requirements,” Altınbaş University professor Hayri Kozanoğlu told Sözcü newspaper in June.