Turkish central bank to ease rules in move to return to 'rational policies'

At new governor Hafize Gaye Erkan's first monetary policy meeting, interest rate was raised by 650 base points

New Turkish central bank governor Hafize Gaye Erkan said bankers had requested simpler rules. AFP

Turkey’s central bank, under new governor Hafize Gaye Erkan, will ease banks’ security maintenance rule as its first step to simplifying policies that were previously adopted to boost Turkish lira savings.

The securities maintenance ratio has been lowered to 5 per cent from 10 per cent effective immediately, according to a decree published in the official gazette on Sunday.

This ratio was increased twice from 3 per cent to 10 per cent in the last two years in order to support the conversion of foreign currency deposits to lira deposits as a part of the “liraisation strategy”.

According to tweaks in the rule, if their share of lira deposits to total deposits is below 57 per cent, banks will need to increase the securities maintenance ratio by an additional 7 percentage points.

The previous threshold was 60 per cent. Banks will get a discounted securities maintenance ratio if they increase the share of their lira deposits to above 70 per cent.

The easing comes after Turkey’s Treasury and Finance Minister Mehmet Simsek promised a return to “rational” policies.

At Ms Erkan’s first monetary policy meeting last week, the central bank raised the interest rate by 650 base points to 15 per cent and signalled a “gradual tightening”.

Ms Erkan met bankers on Friday, and during her first ever public appearance she stated that they had requested a simplification of rules.

The securities maintenance regulation was simplified to increase the functionality of market mechanisms and strengthen macro financial stability, the central bank said in a statement published right after the publication of the official gazette.

Sahap Kavcioglu, who was the previous central bank governor, lowered the interest rate and followed unconventional economic policies, which fuelled the worst inflation crisis in decades and repelled foreign investors that Turkey relies on to plug its perennial current-account deficit.