Turkish Central Bank bids to stop fall of lira

The Central Bank of Turkey (TCMB) yesterday announced the injection of $6 billion into the country’s financial system to guarantee bank liquidity and stop the fall of the Turkish lira against the dollar. In a statement, the TCMB indicated that it is reducing the limits of foreign exchange reserves permitted to Turkish banks so as to withdraw lira from the market, give liquidity to the system and stabilise the value of the Turkish currency.

“With this measure, approximately 10 billion lira and 3 billion US dollars in liquidity equivalent to gold are being invested in the financial system,” the bank said in a statement.

The reserve option mechanism, created in 2011, determines what percentage of the financial reserves of a Turkish bank may be foreign currency or gold, and what part of it must be in lira.

The Bank Regulation and Oversight Agency (BDDK) also announced that it would limit Turkish banks’ transactions with foreign investors to 50% of capital.

The Trump Administration has imposed sanctions on two Turkish ministers and doubled steel and aluminium tariffs for Turkey. This has increased investor distrust in the Eurasian country and accelerated the fall of the Turkish currency, which has depreciated more than 25% this month.