The Turkish central bank has introduced an increase to the compulsory reserve ratio for FX-protected lira deposits with maturities of up to six months, a table published by the country’s Official Gazette showed early Thursday.
Central Bank of the Republic of Türkiye (CBRT) elevated the compulsory reserve ratio for FX-protected deposits, also known as KKM from 15% to 25%, adding to a series of measures aimed at scaling back the lira-protection scheme introduced in 2021.
The change differentiates the compulsory reserve ratios based on the maturity period of the KKM accounts. For deposits with a maturity of up to six months, the reserve requirement ratio increased by 10 points, bringing it up to 25%.
For deposits with a maturity period of up to one year, and those exceeding a year, the compulsory reserve ratio is established at 5%, according to the regulation issued on Thursday.
The move is expected to encourage the excess liquidity of the Turkish lira in the market to be withdrawn by increasing the required reserve ratio.
The CBRT introduced 15% required reserves for all FX-protected lira deposits in July.
The central bank late in August began rolling back a government-backed scheme that safeguards Turkish lira deposits against foreign exchange depreciation, marking another move toward more orthodox policies following a shift toward interest rate hikes.
The bank in its last meeting lifted its key policy rate, also known as the one-week repo rate, by a larger-than-expected 750 points – from 17.5% to 25% and pledged that monetary tightening would be delivered if needed.
With the decision of the CBRT Monetary Policy Committee (MPC) dated Aug. 24, 2023, it was stated that in addition to the interest rate increase, selective credit and quantitative tightening decisions would continue to be taken to support the monetary tightening process.
