The Turkish lira slid 1.8 percent to a fresh record low against the US dollar on Monday after the central bank took steps to simplify rules governing lenders’ holdings and foreign deposits, following its sharp interest rate hike last week, Reuters reported.
The lira fell to 25.76 against the dollar, surpassing last week’s all-time low of 25.74.
It is down 27 percent so far this year, largely after the re-election in late May of President Recep Tayyip Erdoğan, who has since moved to backtrack on his years of unorthodox economic policy, including slashing rates despite soaring inflation.
Two significant steps were taken in recent days: The central bank under new Governor Hafize Gaye Erkan raised rates by 650 basis points to 15 percent on Thursday, a substantial tightening even though it fell short of market expectations.
Then on Sunday the central bank began rolling back parts of the dozens of rules and regulations it had adopted since 2021 that left debt, credit and forex markets heavily state-managed — and that were meant to encourage lira holdings.
The steps were meant to free up markets and ensure stability, the bank said at the weekend.
According to the Official Gazette, the securities maintenance ratio that banks are required to allocate to their foreign currency deposit was reduced to 5 percent from 10 percent.
Securities that banks must maintain ranged between 3 percent and 12 percent of their lira deposits, under the new standard, compared to between 3 percent and 17 percent previously.
The new regulation also said banks whose lira deposits are less than 57 percent of total deposits will have to hold an additional 7 percentage points of securities, compared to the previous seven additional points applied to banks which held less than 60 percent lira deposits.
“Ratios were slowly lowered, allowing banks to adjust their positions slowly and not triggering a rapid rise in interest rates, a slight relaxation of the rules would give banks room and time to maneuver about their bond portfolios,” Reuters quoted Enver Erkan, chief economist at Dinamik Yatırım, as saying.
“It is a comforting and positive development for the sector.”