CBRT announces measures to support TL, economists react
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Turkey’s Central Bank launched new macroprudential measures to increase the attractiveness of lira and reinforce FX reserves Saturday night. In a bid to accelerate the transition to the Turkish lira (TRY) and strengthen foreign currency reserves, the Central Bank of the Republic of Turkey (CBRT) has introduced a broad package of new macroprudential policies. A much better and less distorting measure to lure back FX deposit holders back TL would be lifting or reducing the dreaded withholding tax, which is in the bailiwick of the Treasury and Finance Ministry was not announced, probably because of concerns that it might make a significant dent in revenues.
Experts believe the latest measures may curb demand for foreign exchange, but warn that structural financial dislocations in the economy remain unresolved. Opinions are divided—some claim “we’re back to square one,” while others urge, “don’t expect miracles.”
Announced late at night, the CBRT’s new actions aim to increase the attractiveness of the lira through higher reserve requirements and interest rate adjustments. Among the key moves: extending the FX conversion (surrender) obligation for exporters and increasing the cost of holding FX deposits to banks. The measures also pressure banks to raise their share of lira deposits by corporates, a step back to Turkey’s ill-fated monetary experiment of lowering rates while defending the TL by shifting the burden on banks.
Key Highlights of the CBRT’s New Policies:
Higher FX Reserve Requirements: Banks must now hold a greater share of reserves for foreign currency accounts, increasing the cost of dollar and euro deposits.
Exporter FX Surrender Requirement Extended: Exporters must continue to convert at least 35% of their FX earnings to the CBRT until July 31, 2025.
Incentives for TRY Conversion: Exporters converting FX to TRY will receive a 3% incentive—an extension of existing support programs.
Lira Deposit Ratio Target: Banks must raise the share of TRY in their total deposits or face penalties, reinforcing the “liraisation” strategy.
Limited Impact on Credit: Adjustments to interest paid on lira reserves are minimal and unlikely to significantly affect lending.
Experts Weigh In on the CBRT’s Moves:
Former CBRT research director Prof. Dr. Hakan Kara highlights that continued FX demand forced the CBRT’s hand. “Interest on lira deposits will rise, and pressure on FX might ease slightly,” he stated.
Former Deputy CBRT Governor İbrahim Turhan underlines the importance of context, stating: “If policy tools are used wisely and holistically, macroprudential measures can be effective. But this isn’t always the case.”
Prof. Dr. Burak Arzova notes: “We’ve gone in circles, only to return to where we started.”
Prof. Dr. Emre Alkin calls the policies “beyond insistence—closer to sheer stubbornness,” adding, “reserves won’t recover overnight.”
Market strategist Tufan Cömert adds: “These steps support gross reserves and the lira, but a lasting recovery will take time. Don’t expect a miracle.”
Prof. Dr. Yakup Küçükkale recalls how monetary linkages—between interest rates, inflation, and exchange rates—were severed during past policy missteps and still haven’t been repaired.
Prof. Dr. Ümit Özlale summarizes: “The CBRT aims to replenish depleted reserves caused by past legal and fiscal irregularities—at the cost of burdening exporters and FX-based firms.”
A popular finance commentator, E507, notes: “A 2% increase in FX reserve ratios could add roughly $7.5 billion to gross reserves, though net reserves remain unchanged.”
Conclusion:
While the CBRT’s new macroprudential measures reflect a systematic approach under the current economic leadership, they also echo policies from the past. Whether these steps will rebuild market confidence or simply serve as short-term patches remains to be seen. One thing is clear: repairing the deeper cracks in Turkey’s financial system will require more than technical adjustments—it demands structural reform and long-term commitment.
It is noteworthy that the measures were announced right before the tourism season, when CBRT reserves swell naturally because of tourism revenues. Traders will ask what forced CBRT to take a fairly draconian measure to defend the lira, when seasonal flows would have done the job for it. As far as PA Turkey can ascertain, reservations are up vs. 2024, with industry reps expecting gross revenues of $60 bn.
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