Aug 05 2019

Turkey bank supports lira with new measures on foreign exchange

Turkey’s central bank took more steps to support the lira by making it more expensive to hold foreign currency.

The bank increased its reserve requirement ratios on foreign currency deposits and participation funds by 100 basis points, or one percentage point, it said in a statement on its website on Monday.  

The central bank also decreased by 100 basis points the renumeration rate on dollar-denominated required reserves, reserve options and free reserves held at the bank, to 1 percent.

The steps will withdraw about $2.1 billion of foreign exchange from the market, the bank said.

Turkey has taken unorthodox measures to lower demand for foreign currency and to increase the attractiveness of the Turkish lira since a currency crisis peaked last August. The lira reached a record low of 7.22 per dollar 12 months ago. It now trades at around 5.55 per dollar.

Some economists have criticised the measures, saying they run contrary to principles of free movement of capital and are a weaker substitute for tighter monetary policy.