Turkey's lira and bonds firmed on Thursday after the central bank made a surprise increase to banks' required reserve ratios (RRR) at the first policy committee meeting chaired by new governor Erdem Basci.
The bank held its main interest rate at 6.25 percent but in a second statement said it had lifted the reserve ratio on one month lira deposits to 16 percent from 15 percent, and raised the ratio on foreign currency deposits of one year duration to 12 percent from 11 percent. The increases would drain $1.4 billion and 1.5 billion lira from the market, the bank said.
The lira strengthened to 1.5142 against the dollar, from 1.5167 before the announcement. The yield on the benchmark February 20, 2013 bond was down to 8.48 percent, from 8.57 percent before the central bank announcement. Dealers said no-one in the market had expected the bank to shift the lira reserve ratio after a hefty move last month.
"It's a surprise that they did another increase on the lira side," said Tufan Comert, a strategist at Garanti Securities in Istanbul. Basci, a 44-year-old former deputy governor, is considered the architect of an unorthodox policy begun last December, which combines lower interest rates with higher required reserve rates for banks. The central bank's strategy has been aimed at tightening monetary policy overall while preventing further appreciation of the lira as ultra-low US interest rates spur capital inflows to emerging markets including Turkey.
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