Bloomberg News

Turkish Bank May Cut Reserves to Help Long-Term Bonds

September 28, 2011

(Updates with comment from strategist in fourth paragraph.)

Sept. 28 (Bloomberg) -- Turkey’s central bank may lower reserve requirements and would design any such changes to encourage longer-term issuance of bank bonds, Governor Erdem Basci said.

The central bank is able to take action on reserve requirements outside its regular monthly rates meetings, Basci said at a conference in Istanbul today. The next rates meeting takes place Oct. 20.

Under Basci, the Ankara-based lender has used the reserves banks must deposit against their liabilities as a tool to control economic growth by rationing the cash banks have available to lend to consumers and business. Demand is now slowing and European debt problems may require an easing of all policy instruments, the bank said Sept. 20, a phrase Basci repeated today.

“The bank may move to lower the long-term lira reserve requirement,” Tufan Comert, a strategist at broker Garanti Securities in Istanbul, said in e-mailed comments. The change may come “at the next meeting, or before.”

The index of banking shares was 2.5 percent higher at 3:36 p.m. in Istanbul, with the main ISE National 100 index 1.6 percent higher at 59.193.77.

The reserve requirement rate on liabilities such as deposits ranges from 16 percent for the shortest-term, to 5 percent for those of over one year. For the banks’ bonds the central bank demands 13 percent reserves, and at present the rate doesn’t vary over different maturities.

For foreign currency liabilities the rate is 11.5 percent for up to a year and 9.5 percent for longer than a year.

Yields on benchmark two-year bonds extended a decline after Basci spoke and were 6 basis points, or 0.06 of a percentage point, lower at 8.37 percent at 3:16 p.m. in Istanbul.

The bank kept the benchmark one-week repo lending rate unchanged at 5.75 percent, a historic low, at its Sept. 20 meeting.

--Editors: Digby Lidstone, Karl Maier

To contact the reporter on this story: Ercan Ersoy in Istanbul eersoy@bloomberg.net; Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net.

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.


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