2 Actions by Central Bank to Prevent Depreciation of Turkish Lira

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The Central Bank of the Republic of Turkey (TCMB) made two announcements in the early morning today (August 13).

After the exchange rate of US Dollar exceeded 7.70 Turkish Lira on the websites of some banks at the evening hours yesterday, it was feared that panic would break out upon the opening of the markets.

Announcing the two actions to be taken in an attempt to prevent the depreciation of the Turkish Lira, the Central Bank has stated, "In the framework of intraday and overnight standing facilities, the Central Bank will provide all the liquidity the banks need."

In addition to this first action, which involves changes in the liquidity management of the Turkish Lira and the liquidity management of foreign currencies, the Bank has also announced that it has lowered Turkish Lira required reserve ratios by 250 basis points for all maturity segments.

In the statement entitled "Press Statement Regarding Required Reserves", it has also been announced that with this change, a liquidity of 10 billion Turkish Lira and 6 billion US Dollar as well as a liquidity of 3 billion US Dollar denominated in gold will be provided to the financial system.

Why has the Central Bank intervened?

At the weekend, when the markets were closed in Turkey, the banks raised the exchange rate of US Dollar to almost 7.80 Turkish Lira, while they kept the rate, at which they purchased US Dollar, between 5.90 and 6.70 TRY.

The high exchange rates on the websites of banks led to the impression that when the markets opened today, panic would break out.

The Minister of Treasury and Finance Berat Albayrak also previously stated that "they would take the necessary actions and share the necessary announcements with the market."

When the markets opened today, the exchange rate of US Dollar was around the level of 6.40 Turkish Lira. Exceeding 6.90 TRY at 10 a.m., the exchange rate of US Dollar was 6.86 Turkish Lira as of 12 p.m. today. (HK/SD)