Market News

(Bloomberg) -- Turkey’s central bank raised reserve requirements for some lira deposits to mop up excess liquidity from the financial system and strengthen monetary policy’s impact on market interest rates.

The reserve requirement ratio for short-term lira deposits will rise to 17% from 15%, the central bank said in a statement on Friday. The amount of reserves banks can hold for their foreign-exchange liabilities in the local currency was cut to 4% from 5%.

Those moves would likely drain about 100 billion liras from the interbank market, where excess daily liquidity is at around 638 billion liras on Thursday, according to Okan Ertem, a senior economist at Turk Ekonomi Bankasi in Istanbul. Excess liquidity usually weakens the monetary authority’s ability to affect short-term market rates. By mopping up some of it, the bank could strengthen the impact of its interest-rate decisions on lira deposits, demand conditions and even the volatility of the currency.

Separately, Turkey eased some of the stringent requirements forcing banks to convert some of consumers’ and businesses’ savings in FX-linked deposit accounts into local currency.

“This is largely a policy normalization step, with limited immediate impact,” said Erkin Isik, chief economist at QNB Turkey in Istanbul.