Turkey Central Bank Simplifies Rules Under New Governor

Turkey’s Central Bank, under new Governor Hafize Gaye Erkan, is easing its security maintenance rule as its first step to simplifying policies designed to boost Turkish lira savings.

The securities maintenance ratio has been lowered to 5% from 10% effective immediately, according to a decree published in the Official Gazette on Sunday. The ratio was increased twice from 3% to 10% in the last two years in order to support the conversion of foreign currency deposits to lira deposits as a part of the “liraization strategy.”

Under the tweaked rules, if a banks share of lira deposits is below 57%, they will need to increase the securities maintenance ratio by 7 percentage points. The previous threshold was 60%. Banks will get a discounted securities maintenance ratio if the share of lira deposits rises to more than 70%.

The easing comes after Turkey’s Treasury and Finance Minister Mehmet Simsek promised a return to “rational” policies. At Erkan’s first monetary policy meeting last week, the central bank hiked the interest rate by 650 base points to 15% and signaled a “gradual tightening.” Erkan met bankers on Friday, and in her first public appearance since taking the role said they had requested a simplification of rules.

The Turkish lira has depreciated by nearly 18% against the dollar this month, with the slide extending after Simsek emphasized his backing for a gradual shift in economic policies.