Macro Analysis /

Turkey: CBT hikes RRRs on forex deposits by 200bps for all maturities

  • RRRs raised to 23% for forex deposits with less than one-year maturity, to 17% for forex deposits with longer maturity

  • Move likely aims to stimulate lira savings, support forex reserves of CBT

  • RRR hikes do not change our forecast on MPC to hold policy rate on Sep 23 meeting

Turkey: CBT hikes RRRs on forex deposits by 200bps for all maturities
15 September 2021

The CBT raised required reserve ratios (RRR) on forex deposits by 200bps for all maturities, according to a CBT decree, released in the Official Gazette. The decree was set to enter in force on Sep 17. The new RRRs are 23% for forex deposits with maturity of less than one year and 17% for those with one-year or above maturity. This marked the second increase in the RRRs on forex deposits this year, following the 200bps hike in July. We think the move probably aimed to stimulate lira savings over forex ones in order to address the deposit dollarization trend at local banks as well as to support forex reserves of the CBT. Required reserves (RR) on forex deposits maintained in forex stood at USD 61.9bn as of Sep 2, while USD 5.7bn of RRs on forex deposits were maintained in gold, according to the CBT data. The bank's gross forex reserves reached USD 78.0bn as of Sep 3, the CBT data showed.

An analyst of the financial broadcaster Bloomberg HT commented that the RRR hikes were likely designed to compensate for potential losses of forex reserves of the CBT due to the earlier announced termination of the reserve options mechanism (ROM) as of October. The ROM allows banks to keep certain share of RRs on lira deposits in forex and gold. The CBT narrowed the ROM facility in July under its plan for gradual exit from it. Under the ROM, some USD 1.6bn of RRs on lira deposits were maintained in forex as of Sep 2, USD 3.7bn of them - in standard gold, and USD 1.6bn - in scrap gold.

The CBT also reduced the upper limit of the reserve options mechanism (ROM) for forex to 10% from 20%. In other words, banks will be allowed to maintain a maximum 10% of their lira required reserves in forex at the CBT. The CBT said the ROM for forex will be terminated as of October. It did not make any announcement regarding the ROM for gold, implying no change.

The RRR change does not change our forecast for the MPC to hold the policy rate at 19.0% on its Sep 23 meeting. CBT governor Sahap Kavcioglu said in a recent speech that the CBT will give more weight to core inflation developments in setting monetary policy going forward, compared to the MPC's previous guidance that the policy rate will be determined at a level above inflation. We think the shift in policy guidance was rather for ruling out a rate hike on the September MPC meeting when headline inflation accelerated to 19.25% y/y in August and exceeded the policy rate, and for preparing the market for a rate cut in Q4, when headline inflation is expected to fall.