Turkish Reserve Requirements Tightened and Not Balanced with a Cut in Central Bank Rate

March 23, 2011

The Central Bank of the Republic of Turkey increased reserve requirements by between two and five percentage points.  As of April 1, most will range from 9% to 15%.  This move was not anticipated, as policymakers had adopted a wait-and-see stance in February after implementing changes in prior months that lowered key interest rates, widened the corridor between its lending and borrowing rates, and raised reserve requirements.  A statement released today left the key one-week repo rate at 6.25%.  Such was cut by 50 basis points in December and 25 bps in January to 6.25%.  It was at 18.75% prior to November 2008 but sliced to 7.0% in a string of reductions during the 12 months to November 2009.  Officials have been insisting that the net impact of its recent moves would be restrictive, and today’s adjustment, which should remove 19.1 billion lire from the money market underscores that fact.  The statement also affirms a readiness to tighten credit policy additionally if needed to contain potential second-round effects on CPI inflation from the elevation of commodity prices.  Consumer prices rose 4.2% between February 2010 and February 2011.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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