© Reuters. FILE PHOTO: A woman holds Turkish lira banknotes in this illustration taken on May 30, 2022. REUTERS/Dado Ruvić/Illustration
ISTANBUL (Reuters) – The Turkish lira fell 1.8 percent to a new record low against the US dollar on Monday after the central bank took steps to streamline rules governing lenders’ holdings and foreign deposits after raising interest rates last week.
The lira fell to 25.76 against the dollar, surpassing the lowest level it recorded last week at 25.74.
It is down 27% so far this year, largely after the re-election of President Recep Tayyip Erdogan in late May, who has since rolled back years of unorthodox economic policy including price cuts despite rising inflation.
Two big steps have been taken in recent days: The central bank under new governor Hafid Gay Erkan raised interest rates by 650 basis points to 15% on Thursday, a significant tightening although it fell short of market expectations.
Then on Sunday the central bank began rolling back parts of dozens of rules and regulations it had adopted since 2021 that left the debt, credit and forex markets largely state-run — intended to encourage holdings of the lira.
The bank said over the weekend that the steps were aimed at liberalizing markets and ensuring stability.
According to the Official Gazette, the percentage of maintaining securities that banks are required to allocate to their deposits in foreign currencies has decreased to 5% from 10%.
The securities that banks are required to keep ranged between 3% and 12% of their deposits in pounds, according to the new standard, compared to between 3% and 17% previously.
The new regulation also said that banks whose deposits in pounds are less than 57% of total deposits, will have to hold an additional seven percentage points of securities, compared to the previous seven additional percentage points applied to banks with less than 60% of deposits in pounds.
“The rates were slowly lowered, allowing banks to adjust their positions slowly and not causing a rapid rise in interest rates, and a slight easing of the rules would give banks room and time to maneuver on their bond portfolios,” said Enver Erkan, the company’s chief economist. Dynamic Yatrim.
“It is a comfortable and positive development for the sector.”