More RRR cuts from CBRT likely in the months ahead

Central bank of the Republic of Turkey (CBRT) on Tuesday, Aug 9th, cut its reserve requirement ratios (RRR) on lira deposits for banks by 50bps. The central bank also increased its reserve options coefficient (ROC) which controls the amount of reserves banks may choose to keep in foreign currency or gold.

Turkey’s central bank is trying to find ways to ease monetary conditions without cutting its main policy rate. The central bank said its move which was part of an effort to increase the amount of cash available to the Turkish economy could provide up to 1.1 billion lira ($370 million) and $600 million to the financial sector.

The changes are intended to reduce funding costs for banks, which may lead to lower loan rates. They come after Turkey's currency, the lira, weakened to record lows against the dollar following a failed coup last month.

Turkish banking stocks rose after the announcement. For the exchange rate, this easing is roughly lira neutral as both lira and USD supply are being increased in tandem. USD/TRY slipped lower following the central bank decision and is currently trading around 2.9620 at 09:45 GMT. Technicals on charts are bearish. We see scope for test of 2.92 levels.

"We expect further RRR cuts in the months ahead. This easing is roughly lira neutral as both lira and USD supply are being increased in tandem," said Commerzbank in a report.