No: 2010 – 29

23 September 2010

PRESS RELEASE ON REQUIRED RESERVES

In addition to other measures regarding Turkish lira and foreign exchange (FX) liquidity taken to alleviate the impact of global financial crisis that began to deepen in October 2008 on the domestic economy, the Central Bank of the Republic of Turkey (CBRT) had reduced the required reserve ratios for Turkish lira and FX liabilities by 1 and 2 percentage points to 5 and 9 percent on December 5, 2008 and October 16, 2009, respectively. As known, besides the other measures regarding Turkish lira and foreign exchange (FX) liquidity, the required reserve ratios for Turkish lira and FX liabilities were reduced by 1 and 2 percentage points to 5 and 9 percent on December 5, 2008 and October 16, 2009, respectively, to alleviate the impact of global financial crisis, which began to deepen in October 2008, on the domestic economy.

In its press release of April 14, 2010 on the monetary policy exit strategies, the CBRT announced that the measures related to FX liquidity would be gradually taken to the pre-crisis levels at a controlled pace, and if the liquidity shortage decreases noticeably and/or credit conditions improve, the Turkish lira and FX required reserve ratios might be increased gradually and at a controlled pace, and the required reserve ratios might be used more actively as a policy tool to mitigate the macroeconomic and financial risks.

In this context, the FX required reserve ratio was  increased by 0.5 percentage point totwice till reach 10 percent by 0.5 percentage point to be effective starting fromas of the calculation periods of April 30, 2010 and August 6, 2010, and thus the FX liquidity was reduced approximately by USD 1.4 billion.

This time, taking the recent increase in credit volumes into account consideration, the FX and Turkish lira required reserve ratios was have been increased by 0.5 percentage point from 5 percent to 5.5 percent and FX required reserve ratio was increased by 1 percentage point from 10 percent to 11 percent. 1 and 0.5 percentage point from their current levels of 10 and 5 percent to 11 and 5.5 percent, respectively. Thus, the FX and Turkish lira liquidity willould be reduced approximately by USD 1.5 billion and TL 2.1 billion, respectively.

On the other handMoreover,, the Turkish lira and FX required reserves hadve been remunerated since August 8, 2001 and May 24, 2002, respectively. However, the remuneration of FX required reserves was terminated on December 5, 2008.

It is stated in The Pparagraph 19 of the in the monetary policy exit strategy announcement states that “The main policy instrument of the Central Bank is the short-term interest rates. However, one of the lessons learned during the crisis is that other monetary policy instruments may be required to reduce the macroeconomic risks, especially when the economy is overheated. In this context, depending on future developments, – for example if the credit expansion speed exceeds desired levels – the required reserve ratios may be used more actively as a policy tool to reduce the macroeconomic risks”. In this framework, to use the required reserve ratios as one of the policy tools to mitigate the macroeconomic and financial risks more actively in the future, the remuneration of Turkish lira required reserves is also terminated.