Higher Turkish Reserve Requirements

November 17, 2010

On November 12, the Central Bank of the Republic of Turkey increased reserve requirements on local-currency denominated assets to 6.0% from 5.5%.  That action followed a 400 basis point cut of the overnight borrowing rate unveiled the day before and reviewed here.  The increase of reserve requirements should remove close to $1.5 billion equivalent from the banking system.  In conjunction with a wider 700-bp spread between the overnight lending and borrowing rates, Friday’s further step constitutes a tightening of monetary policy to contain inflation, slow the growth of bank credit and deter inflows of hot money that can feed inflation.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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