Turkey's central bank will add a required reserve ratio (RRR) based on banks' leverage ratios to its policy tool kit in early 2014 to support financial stability, officials said in an end of year news conference on Tuesday. Laying out its approach on policy for 2013, Governor Erdem Basci gave no new hints of the bank's next policy move after a series of interest rate cuts in the past six months.
He said the bank would continue to use a complicated mix of a managed interest rate corridor, forex and lira liquidity management, maturity-based RRRs and reserve option coefficients as policy tools in 2013. "In the new regime, financial stability will be maintained as the main goal," the Governor said, noting the risks that stimulation of the economy through monetary policy carries for the country's financial stability.
Reuters reported in November that the bank was considering setting up an early warning system to avert the risk of cheap foreign borrowing feeding a credit bubble and could consider stricter reserve requirements for banks deemed too highly leveraged from 2014 if it sees such problems developing. "The monetary policy stance will continue to be characterized by short term interest rates and tight macroprudential measures," said Gokce Celik, an analyst at Finansbank.
"We welcome central bank's actions on the macroprudential side, as we foresee domestic demand accelerating in the upcoming period which would translate into excessive loan growth and external balance deterioration in the absence of a policy response."