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Turkish central bank moves to provide liquidity as lira slide continues

Turkey's central bank said it will provide "all liquidity the banks need" as the sell-off in the Turkish lira continued.

Türkiye Cumhuriyet Merkez Bankasi AS reduced banks' lira reserve requirement ratios by 250 basis points for all maturity brackets and reserve requirement ratios for noncore foreign exchange liabilities with one-, two- and three-year maturities by 400 basis points. The bank also increased the maximum average maintenance facility for foreign exchange liabilities to 8% and allowed banks to use the euro, in addition to the dollar, for maintenance against lira reserves under the reverse options mechanism.

The measures will provide about 10 billion lira, $6 billion and $3 billion equivalent of gold liquidity to the financial system, the central bank said.

The lira recovered some of its losses in early European trading and was down 3.29% against the dollar as of 2:20 a.m. ET on Aug. 13, but dropped further and was trading 7.23% lower as of 3:38 a.m. ET.

The central bank also said it will revise discount rates for collaterals against transactions in Turkish lira based on type and maturity to provide flexibility to banks and expects lenders' current unencumbered collaterals to rise by about 3.8 billion lira as a result. The central bank has also raised collateral foreign exchange deposit limits for banks' lira transactions to €20 billion from €7.2 billion.

"The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary," it said.

Turkish Finance Minister Berat Albayrak had said Aug. 12 that his country would the next day unveil an economic plan to calm markets. Turkey's currency crisis worsened after President Recep Tayyip Erdogan's continued opposition to higher interest rates dashed markets' hopes and U.S. President Donald Trump said the U.S. will double tariffs on Turkish steel and aluminum.

As of Aug. 10, US$1 was equivalent to 6.40 Turkish lira.