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Turkey: Interest on foreign reserves

In its recent press release of May 2 2015, the Central Bank of Republic of Turkey (CBRT) changed its policy of not paying any interest on foreign exchange denominated reserves, which was previously adopted with the Communiqué on the Amendment to the Communiqué on Reserve Requirements

Isil ÖktenBurak Erusta
In its recent press release of May 2 2015, the Central Bank of Republic of Turkey (CBRT) changed its policy of not paying any interest on foreign exchange denominated reserves, which was previously adopted with the Communiqué on the Amendment to the Communiqué on Reserve Requirements (2008/7). Under the recent press release, as of May 5 2015, the CBRT started to pay interest on reserve requirements, reserve options and current accounts which are kept in US dollar accounts held by the CBRT. The press release states that applicable interest rates will be determined on a daily basis in accordance with the changing conditions of the global and local markets. The rates to be determined are published on screen DV008 Anatolian Agency and screen CBTB Reuters as at 9.30.

The liabilities that are subject to reserve requirements and the rates of reserve requirements are set out in the Communiqué Regarding Reserve Requirements (2013/15 – Communiqué) published by CBRT on December 25 2013 (Official Gazette 28862). Under Article 12 of the Communiqué, the CBRT has the authority to determine the principles and procedures for payment of interest on the reserve requirements.

The CBRT has been using reserve requirements as an active tool of monetary policy; on April 22 2015 it announced a 50 basis points increase in interest rates payable to Turkish lira reserve requirements effective as of May 8 2015. This interest rate increase on Turkish lira reserve requirements has been carried out by the CBRT to support the core liability ratios as was announced by the CBRT in its press release of October 21 2014.

Under the Communiqué, banks are permitted to maintain up to a maximum of 60% (calculated by multiplication of the percentage slices with reserve option coefficients set out in Clause 7 of the Communique) of the Turkish Lira reserve requirements in US dollars. The banks are required to maintain their required reserves against their US dollar denominated liabilities in US dollars only; they may keep the reserve requirements against other foreign currency liabilities either in US dollars or in euros in accounts held with the CBRT.

Isil Ökten and Burak Erusta

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