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Top News

Turkey drops FX deposits 0.5 points to ease monetary policy again

ISTANBUL : Turkey 's central bank cut its bank reserve requirement for foreign exchange deposits Friday, supporting a s
Published August 6, 2011

Central Bank of TurkeyISTANBUL: Turkey's central bank cut its bank reserve requirement for foreign exchange deposits Friday, supporting a set of measures taken to cope with global economic strains affecting the economy.

"Required reserve ratios for foreign exchange deposits are decreased 0.5 points for all terms," under the framework of the decisions that the monetary policy committee made Thursday, the bank said in a statement on its website.

"According to current data, around $930 million of liquidity will be provided to the market and the weighted average required reserve ratio will drop to 11 percent," it said.

By easing reserve requirements -- the amount of money held as a reserve against their liabilities -- banks get more leeway in managing their deposit base and can lend more money if they choose, helping support the economy.

The bank Thursday cut its key interest rate but raised overnight borrowing rates in twin moves to cope with global economic strains and prevent the fast growing economy from being dragged into recession.

It cut its key policy rate from 6.25 percent to 5.75 percent, while raising its overnight borrowing rate from 1.5 percent to 5.0 percent in order to "reduce the volatility" in short-term interest rates.

The measures "might mark the beginning of a shift in the central bank's policy stance towards a combination of a 'lower policy rate, lower required reserve ratios and a narrower interest rate spread'," said Inan Demir, the chief economist of Finansbank.

The central bank is concerned at the threat of a growth slowdown and "expects a much harsher sell-off in the near future. In order to avoid increased volatility...they are giving an opportunity for 'hot money' to exit the country...by providing enough foreign exchange liquidity," TEB Bank's Selim Cakir said.

On Wednesday, credit ratings agency Moody's warned Turkey about growing domestic and external imbalances which could undermine its positive rating outlook if left unaddressed.

The Turkish economy contracted by 4.7 percent in 2009 but it grew by 8.9 percent last year, higher than the government had forecast.

Moody's said that a rapid inflow of funds made Turkey "susceptible to sudden shocks or shifts in investor sentiment."

Turkey, which hopes to become a European Union member and is vying to take on a bigger role in the Middle East, emerged from dire economic problems nearly a decade ago with aid from the International Monetary Fund in return for deep structural reforms which are now bearing fruit.

 

Copyright APP (Associated Press of Pakistan), 2011

 

 

Copyright AFP (Agence France-Presse), 2011

 

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