In line with the recent tightening monetary policy practices, the CBRT increased the RR rates of banks by 2 points at each maturity and withdrew some TRY liquidity from the money markets. With the increase in RR ratios, as the amount that banks are obliged to keep in the Central Bank accounts increases, both TRY liquidity will tighten and effective TRY costs in the market will increase. We expect this to have an upward impact on the money market rates and deposit rates.
CBRT also lowered the cap for foreign exchange and standard gold holding to 20% and 15% of TRY required reserves, respectively. Bank also increased the interest rate paid to TRY reserves by 150 basis points to 13.5%. With the changes, provided that the reserve option usage rates remain unchanged, the required reserves of the banking system are expected to increase by approximately 25 billion TRY (3.5 billion USD) and reduce the foreign exchange and gold reserves by approximately 500 million USD.
It is seen that the Central Bank has fine-tuned the tight monetary policy ground that it has created both with strong communication and high interest rate hikes after the management change, through liquidity-based instruments. The TRY costs, which banks can effectively create at lower levels in terms of market operations and liquidity positions, will increase as they may need to withdraw more deposits to create resources for the loan, and this situation may reflect positively on deposit rates between half and 1 point. In terms of bank interest rates increasing through the monetary transmission mechanism with the interest rate hikes and tight stance of the Central Bank, artificial pricing will decrease on the credit side and will have a slowing effect on the credit growth side.
