Bloomberg News

Turkey Seeks to Bolster Reserves by Asking Banks for Dollars

May 29, 2012

Turkey’s central bank is seeking to increase its foreign currency reserves by as much as $2.1 billion to bolster its defenses against the crisis in Europe.

The central bank in Ankara raised the portion of required lira reserves banks can keep in foreign currency to as much as 45 percent of total reserves from 40 percent, it said in statement on its website today.

Central bank governor Erdem Basci is seeking to boost his defenses against further sales of liras by increasing his reserves from $80 billion on May 18. While Turkey has raised its foreign reserves by 4.9 percent this year, the amount is dwarfed by Russia’s $466 billion, Brazil’s $373 billion and South Korea’s $317 billion. The lira has gained 3 percent this year, the most among currencies in Europe, the Middle East and Africa after slumping 18 percent in 2011, the most globally.

The measure will help “meet the banking system’s lira liquidity needs in a permanent way and at a lower cost and at the same time support the central bank’s foreign currency reserves,” the statement said. Banks currently use about 90 percent of the 40 percent option to keep reserves in foreign currency, it said.

Impact on Lira

The step, to be implemented on June 22, would release as much as 2.8 billion liras of lira liquidity into the market, the central bank said.

The lira weakened less than 0.1 percent to 1.8370 per dollar at 2:20 p.m. in Istanbul. Yields on two-year benchmark bonds fell seven basis points to 9.38 percent.

“The adjustment will aim at killing two birds with one stone,” Ozgur Altug, chief economist at BGC Partners in Istanbul, said in an e-mailed report to clients. ‘First the central bank will be able to boost its gross foreign exchange reserves and second banks will have more flexibility. We don’t think that the regulation change should be necessarily positive for the lira.’’

The central bank also said it left its benchmark interest rate of 5.75 percent unchanged. It kept the upper rate of its variable rates corridor steady at 11.5 percent, according to a statement on its website.

Turkey’s inflation rate of 11.1 percent in April is set to stay “well above” the central bank’s 2012 target of 5 percent until the fourth quarter, the central bank said.

To contact the reporters on this story: Aydan Eksin in Istanbul at aeksin@bloomberg.net; Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editors responsible for this story: Shaji Mathew at shajimathew@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net


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