Turkish policy makers made their first move to bolster the financial system and investor confidence amid a plunge in lira. The currency extended its decline in early trading.
Promising to "take all necessary measures," the central bank in Ankara lowered the amount commercial lenders must park at the regulator and eased rules that govern how they manage their lira and foreign-currency liquidity. While there was no mention of higher interest rates, it said all options were on the table.
“The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary,” according to the statement released early Monday.
It’s all part of an action plan announced by Treasury and Finance Minister Berat Albayrak late Sunday when he also rejected capital controls as an option to stem outflows of hard currency and vowed to crack down on those he said were spreading damaging rumors that deposits would be seized.
The lira briefly trimmed losses after the central bank statement but weakened about 6 percent to 6.8130 at 10:10 a.m. in Istanbul.
The currency has lost about a quarter of its value against the dollar since the U.S. sanctioned two ministers in President Recep Tayyip Erdogan’s government in a spat over the continued detention of an American pastor in Turkey, pushing the Middle East’s largest economy toward a full-blown financial meltdown.
After Albayrak’s comments on Sunday, the banking regulator put restrictions on dollar-lira swaps in an attempt to make it harder for offshore investors to bet against the currency. Although the central bank action was more comprehensive, its use of fringe tools is unlikely to be a “game changer” for the lira, Global Securities analysts including Research Director Sertan Kargin said in an emailed report.
“The latest liquidity measures could provide some buffer to cushion the lira against speculative moves,” the report said. But, it said, the move “remains insufficient to provide full protection for the lira in times of distress in the absence of an outright orthodox rate hike.”
The central bank said easing the reserve requirements would free up as much as 10 billion liras, $6 billion in dollars and $3 billion worth of gold.
It also eased collateral rules and nearly tripled the amount of liras banks can borrow in return for their foreign-exchange holdings to 20 billion euros ($22.8 billion.) The $50 billion limit on the amount of foreign-exchange banks can borrow in return for their lira assets can also be changed if needed, it said.