Turkey Central bank focuses on credit availability after rate cuts
WHAT YOU SHOULD KNOW
- Business groups have recently been complaining about the regulations imposed on them.
- More inflation is expected in the future as the pressure on lira grows.
Turkey central bank announced new measures on Saturday meant to improve credit availability, days after it shocked markets with a 100 basis-point interest rate cut to 13%. These measures include higher reserve requirement collateral for lenders.
The bank aims to support financial stability and strengthen the monetary transmission mechanism. It accomplishes the task by looking over the widening gap between the policy rate and lending rates.
The Turkey central bank has increased the treasury bond collateral requirement for credits from 20% to 30%. It has already taken some precautions, such as limiting loans to companies that serve as exporters.
Business groups have been complaining recently about the regulations that have been imposed on them. They say that the regulations are making it difficult for them to access financing at low rates.
The banks are being required to keep a higher percentage of collateral on loans that have an interest rate over 1.4 times the current reference rate. The requirement for a higher percentage of collateral is in place for loans that have an interest rate over 1.8 times the reference rate.
The central bank is asking banks to maintain a certain level of securities to ensure that the banks don’t exceed a 10% loan growth rate. This makes banking much more complicated. The banks now have to worry about their securities holdings in addition to their lending rates. It will likely lead to more inflation and further pressure on the lira.
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