Turkish banks have been instructed to put a portion of their lira required reserves into blocked accounts, according to a document the country's central bank sent to them on Wednesday, in the latest move expected to tighten liquidity and push up deposit rates.
The rule, which had not been previously reported, comes into effect on Friday. Bank stocks dropped almost 5% after the report.
The central bank move comes after authorities took steps last week to curb lending and discourage banks' demand for foreign currency, as part of an effort to cool inflation that hit 67% last month.
While the central bank held its key interest rate steady at 45% last month after an aggressive tightening cycle, Treasury and Finance Minister Mehmet Şimşek this week promised tighter fiscal policy to help the central bank reduce inflation.
According to the document seen by Reuters, banks with asset sizes larger than TL 100 billion ($3.11 billion) will be required to impose a block on 15% of lira required reserves.
Those with more than TL 500 billion ($15.57 billion) will impose it on 25% of lira required reserves, it said.
The lira weakened a bit to match a record low touched on Tuesday of 32.1 versus the U.S. dollar, bringing its losses this year to 8%.
Türkiye's CDS fell back down to 310, its lowest since March 1, and the banking index dropped nearly 5%.
Mehmet Baki Atılal, deputy general manager of research at A1 Capital, said news of the central bank regulation undercut bank stocks.
"This announcement/action is poised to elevate interest rates and pose a burden on bank profits, inevitably leading to a downturn in the banking index," he said.
Last week, Fitch raised Türkiye's rating to "B+" from "B," saying tighter approaches to monetary policy were helping combat inflationary trends.
After winning reelection last May, President Recep Tayyip Erdoğan installed a new economy administration that abandoned years of easing policy in favor of tightening.
An aggressive eight-month policy-tightening cycle since June raised the central bank's main interest rate by 3,650 basis points to 45%. The tightening aims to arrest inflation, curb chronic deficits, rebuild foreign exchange reserves, and stabilize the lira.
Some banks and economists have expressed a growing prospect of more policy steps to cool inflation after nationwide local elections on March 31, given the price pressure and strong domestic demand.
