According to the decree published in the Official Gazette, the CBRT increased the required reserve ratio for foreign currency deposits by 200 basis points. Changes to required reserves are as follows:
· The required reserve ratio for FX deposits/participation funds was increased from 21% to 23% for up to one year, and from 15% to 17% for those with maturities of one year or longer.
· The required reserve ratio for precious metal deposits was increased from 22% to 24% up to one year, and from 18% to 20% for those with a one-year or longer maturity.
· The changes will take effect from 17 September.
We will see the effect of the increase in RR primarily on the Central Bank reserves. Similar to the RR increase in July, with this move, which prioritizes managing foreign exchange liquidity and reserve adequacy, the amount of foreign currency deposits that will enter the CBRT accounts will have an increasing effect on the gross reserves side. In terms of the CBRT roadmap, we find it more appropriate to connect it with the financial stability factor (reserve accumulation, liquidity) rather than directly associating it with the interest rate decision or exchange rate levels (fight against inflation, price stability). In the regulation in July, the maximum rate of the possibility of establishing TRY required reserves in foreign currency (Reserve Option Mechanism - ROM) was reduced from 20% to 10%. This facility, which will be held in foreign currency, will be terminated in October. After this period, the priority of the arrangements to be made through the RR will be in the form of reserve accumulation. Although the effect of increase in gross reserves with the contribution of swap agreements, SDR and RR regulations recently seems positive in terms of reserve adequacy indicators (international reserve comparisons, short-term debt or import coverage adequacy), the short position in net reserves (financial fluctuations, public and private sector foreign exchange position, etc.) in terms of the fragility factor, we attach more importance to the strengthening of the net reserves.
We do not expect the Central Bank to change interest rates at its September 23 meeting. We can see the rate moves in the meetings to be held in the last quarter, and there may be limited reductions based on the inflation situation. In terms of limited rate cuts, we will monitor the October and later meetings.
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