The move effectively raised the cost of funding by 150 basis points without an official increase in the benchmark interest rate.
(Bloomberg) --Turkey’s central bank has stepped in to tighten the supply of liras last week by raising borrowing costs for lenders and making a series of changes to reserve requirements in an attempt to bolster the country’s battered currency.
The regulator is ceasing to provide liquidity at its cheapest rate of 24 per cent by suspending one-week repo auctions, a decision it attributed to volatility in financial markets.
In a statement, the Central Bank of the Republic of Turkey (CBRT) said that it lowered the amount of foreign currency commercial lenders are required to park at the regulator as part of their mandatory lira reserves, which will soak up TRL 7.2 billion ($1.2 billion) from the system.
At the same time, the monetary authority increased reserve requirements for foreign-currency liabilities by 100 basis points.
The central bank said that the changes will withdraw a combined $200 million of foreign-exchange liquidity from the market.
The lira, already among the worst-performing currencies in emerging markets this year, has come under renewed pressure this week amid concerns over the central bank’s commitment to raising rates if needed to curb inflation.
The regulator has used fringe tools to bolster the currency in the past, most recently in March when it suspended repo auctions for two weeks.
The central bank’s next monetary policy meeting is scheduled for 12 June.