Turkey's central bank said banks must hold at least 50 percent of the foreign currency they deposit as reserves for lira liabilities in dollars, in a new set of rules published today. Banks may hold the foreign currency in dollars or euros, the central bank said in a statement published in the Official Gazette today. The rules will be enforced from Aug. 17. Turkey's central bank is establishing a new system whereby it may vary the amount of reserves banks can hold in foreign currency for lira liabilities, seeking to control liquidity in the market. The total value of banks' reserves for lira liabilities kept in local or foreign currency may fluctuate as much as five percent during defined two week periods because of the exchange rate, the central bank said. The banks may carry any surplus over into the next two week period to cover future shortfalls, it said. The central bank allows banks to hold as much as 55 percent of their required reserves for lira liabilities in foreign currency and said last week it may increase the amount to 60 percent. Central bank governor Erdem Basci increases the cost for banks to hold foreign currency instead of liras in the reserves after the share of foreign currency passes 40 percent. So-called coeffients used to calculate that cost may be increased or decreased in the coming period as the central bank seeks to control liquidity, Basci said on July 26. Bloomberg
