A man looks at a butcher shop window in Ankara, Turkey February 16, 2022. REUTERS/Cagla Gurdogan
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ISTANBUL, June 10 (Reuters) – Turkey’s Finance Ministry on Friday said fighting inflation remains the top priority of its macroeconomic policies after it and other state institutions announced measures to support an economy hit by rising prices and a falling lira.
The Treasury said it will issue domestic bonds indexed to income of state-owned enterprises to encourage lira-denominated asset saving, the central bank increased the required reserve ratio for lira commercial cash advances from 10% to 20%, and the banking regulator optimized a maturity limit for consumer loans.
“Fighting inflation remains the top priority. In this struggle, the importance of inter-institutional coordination is clear and all our institutions act with the understanding of a common struggle,” the Treasury Department said in a statement.
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The moves sparked volatile trading in the lira. It firmed as high as 16.8 against the US dollar before the announcement before falling back to 17.3 after the announcement. It traded at 17.125 at 0714 GMT according to the Treasury Department’s latest statement.
The lira has fallen 23% this year, on top of last year’s 44% depreciation sparked by a series of unorthodox central bank rate cuts, carried out under pressure from President Tayyip Erdogan despite rising inflation.
The recent announcements also triggered a fall in bond yields, with the yield on the benchmark 10-year bond slipping below 23% from 25.72% last traded on Thursday.
The Treasury said the use of the lira and practices to boost its appeal will continue without jeopardizing free market rules.
Separately, the central bank said banks will hold additional long-term lira fixed-income securities for foreign currency deposits/participation funds as a complementary step to increasing the weight of lira fixed-income securities in the collateral pool, which takes effect on June 24.
“The purpose of this regulation is to increase the effectiveness of monetary policy as part of the liraization strategy,” the statement said.
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Additional reporting by Nevzat Devranoglu, Can Sezer, Ebru Tuncay; Edited by Jason Neely and Mark Heinrich
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