Turkish Central Bank cuts reserve requirement to boost liquidity

The bank said its moves could provide up to 1.1 billion Turkish Liras ($370 million) and $600 million to the financial sector. 

Reserve requirement ratios for banks were cut by 50 basis points, according to a statement. The Central Bank also said it was adjusting reserve option coefficients for some of its foreign exchange and gold facilities, a measure of how much gold or forex a bank may hold as part of its reserves.

The changes are intended to reduce funding costs for banks, which may lead to lower loan rates. They come after Turkey’s currency, the lira, weakened to record lows against the dollar following a failed coup last month.

“We estimate that these moves should result in ... 0.5 percent contribution to banks’ annual earnings,” said BGC Partners economist Özgür Altuğ.

Altuğ had forecast such a move in a note issued before the Central Bank statement, saying such steps might be taken to convince banks to cut their loan rates.

A state of emergency declared after the July 15 coup attempt exacerbated the lira’s losses, but Central Bank Governor Murat Çetinkaya subsequently said the bank’s promise of unlimited liquidity had calmed volatility.