According to a new statement published Sunday on the website of Türkiye’s Central Bank, the regulator has simplified the securities maintenance regulation of the country, as part of an overhaul of the nation’s financial policies.
The measure is designed to make the financial system more efficient and stable by streamlining the existing micro- and macro-prudential framework.
In the statement the central bank said, “As a first step in this context, the securities maintenance regulation is simplified to increase the functionality of market mechanisms and strengthen macro-financial stability. The simplification process will continue in a gradual manner in line with the principles announced by the Monetary Policy Committee.”
The new policy, which goes into effect immediately, will cut the securities maintenance ratio which regulates foreign currency deposits from 10% to 5%. Previously the regulator had twice raised this ratio from 3% to 10% over the previous two years in order to support the conversion of foreign currency deposits into lira. The adjustment will give more flexibility and liquidity to banks.
The new regulation will also take into consideration the composition of a bank’s deposits to formulate specific requirements to impose upon them. The regulator will look at whether a bank’s ratio of lira deposits to total deposits is below 57%, and if it is, it will have to raise the securities maintenance ratio by holding an extra 7% of securities. Previously the threshold was 60%.
If however, the bank raises the share of its deposits of lira to over 70%, then a discounted securities maintenance ratio will apply. The objective of the adjustment is to encourage banks to create a heathier lira to foreign currency ratio in its deposits.
Türkiye’s new finance minister, Mehmet Simsek has sworn to bring the nation’s financial policies back to “rational” foundations following years of the nation pursuing unconventional strategies which saw Turkish inflation skyrocket and the exchange rate of the lira dive.
At a handover ceremony earlier this month, with his predecessor Nureddin Nebati, Simsex said, “Transparency, consistency, predictability and compliance with international norms will be our basic principles in achieving the goal of raising social welfare… Türkiye has no choice but to return to a rational basis. We will prioritize macro-financial stability.”
The central bank of Türkiye shocked onlookers earlier in the week when it launched a surprise interest rate hike, nearly doubling interest rates from 8.5% to 15%. The nation had not seen a rate hike since March of 2021. The newly appointed governor of the central bank, Hafize Gaye Erkan, said he foresees more tightening through the rest of the year until inflation improves. In May inflation came in at 39.59%.
