Turkey central bank stops paying interest on deposits to banks missing loan goal

(Story was updated to correct lending goal in second paragraph.)

Turkey’s central bank will stop paying interest to banks on their required reserves in liras should they fail to meet a goal for loan growth.

Banks will receive no interest on the deposits if they do not meet an annual loan growth target of between 10 percent and 20 percent, the central bank said on Monday in information published on its website. The rate was previously 5 percent for those who missed the target.

The central bank also lowered the interest rate for the required reserves of banks that meet the goal. The rate was cut to 10 percent from 15 percent. The new interest rates will be applicable from Oct. 4, it said.

Turkey’s central bank is supporting government efforts to boost loan growth following a currency crisis last year that sent the economy into a recession.

In August, the central bank reduced the amount of liras that banks must deposit as required reserves should they met the minimum loan growth target of 10 percent.

On Friday, the central bank increased reserve requirement ratios on foreign currency deposits by 100 basis points in another effort to bolster the lira’s value and withdraw foreign currency from the market. It was the second increase in less than two months.

The measures follow a decision by monetary policymakers this month to reduce the central bank’s benchmark lending rate by 325 basis point to 16.5 percent. It has now lowered the rate by 750 basis points since July.

Turkish President Recep Tayyip Erdoğan replaced the central bank’s governor in July saying he failed to respond to government requests to lower interest rates.