Turkey’s banking industry could be damaged unless the central bank reverses last year’s decision to stop paying interest on required reserves, the head of one of the country’s biggest lenders claims.
Suzan Sabanci, chairman of Akbank, told the Financial Times that new rules requiring banks to lodge 15 per cent of short-term lira deposits with the central bank risked fundamentally weakening banks unless they received interest in compensation. “The government is trying to be cautious that the economy doesn’t grow too fast. And I agree with that,” she said. “But we need to be recompensed. They should start paying interest in six months’ time.” Read more
Against expectations, Bank Rossii held rates on Friday, though it did raise reserve requirements. Following similar moves for February and March, Russia’s central bank raised reserve requirements by a percentage point for banks’ liabilities to non-residents (charted, right) and half a point for other liabilities. The proportions of deposits banks need to keep with the central bank now stand at 5.5 per cent and 4 per cent, respectively.
While there are signs that inflation is rising less quickly than previously, prices have still risen 3.6 per cent since the start of the year according to weekly data, making the annual 6-7 per cent target tough to achieve. Most view further rate rises as likely. Read more
Ankara has sharply raised the proportion of short-term deposits lenders must keep with the central bank, while holding policy rates steady.
Turkey’s reserve requirements differ by maturity of deposit, and the central bank’s strategy has been to tighten requirements for potentially destabilising short-term deposits, while loosening them to encourage long-term deposits. The chart, right, shows how the structure of reserve requirements has changed since the new policy began in December (dark blue line), at which point all ratios were 6 per cent. Read more
Large Chinese lenders will need to keep a fifth of their deposits with the central bank from March 25, after the People’s Bank of China announced an increase in reserve requirements. Individual banks that are lending too much might be targeted with further specific measures. Small-medium banks are probably now required to hold 16.5 per cent of loans, though, as ever, this is unclear from the Bank’s statement.
Tightening was expected – even overdue – but comments from the PBoC had suggested it might be a rate rise. This is the third rise in reserve requirements this year and follows a rate rise in February. The last raise in reserve requirements was also half a percentage point, and was announced a month ago, on February 18. Consumer price inflation held at 4.9 per cent in the year to February – the same as January, but above 4.6 per cent in December and also above forecasters’ February expectations of about 4.7 per cent. Read more
Turkey’s central bank stepped in again this week to clear confusion over the effects of its unorthodox monetary policy, after the release of data that appeared to contradict comments made by officials. The trouble was caused by balance of payments data: it showed portfolio inflows of $2.3bn in January, higher than a year earlier and at odds with official claims that some $10bn of “hot money” had left the country since December, when the central bank began “quantitative tightening” to deal with macroeconomic imbalances.
Two clarifications from the central bank have cleared up the discrepancy. The balance of payments data showed foreign investors had sold out of Turkish equities since November, while increasing their exposure to debt instruments. But the figures did not include money market transactions, mainly in the form of swap operations. Here, the central bank said, there had indeed been an outflow of $11.5bn since November. Read more
Malaysia has held rates but raised the proportion of deposits banks must keep with the central bank, as signalled by the bank. The reserve requirement will double from 1 to 2 per cent, effective April 1. The overnight policy rate remains at 2.75 per cent.
Raising the reserve requirement has become a favoured alternative to raising rates in countries wanting to tighten without attracting certain types of destabilising short-term capital inflows. Bank Negara Malaysia described the use of the reserve requirement as “pre-emptive” and “an instrument to manage liquidity and not a signal on the stance of monetary policy”. From the Bank: Read more
Inflation is beginning to slow in Russia, after one rise in bank reserve requirements in January and another one in February – the latter complete with the rate rise markets had been expecting for months.
A Reuters news flash tells us inflation slowed to 0.1 per cent in the week to February 28, bringing the price increase for the month as a whole in at 0.8 per cent, under expectations. Annual inflation has been rising steadily from a low of 5.49 per cent in July of last year, standing at 9.58 per cent at the end of January. The latest data should mean annual inflation to February fell slightly to 9.56 per cent.
Loan growth is slowing in Turkey, backing up claims by Turkey’s central bank governor that its unorthodox monetary policy is working.
Data from Turkey’s banking watchdog, BDDK, showed total banking sector loans rose 2.8 per cent to February 18. This equates to about 21 per cent over a year, well within the bank’s target 20-25 per cent loan growth. It also represents a significant drop from the annual rate of 35.6 per cent on the year to February 18. The actual annual volume of banking sector loans to February 18 was 550.3bn lira. Read more
Loan growth is losing pace and $10bn short-term capital has left Turkey since the start of its new interest rate policy in December, central bank governor Durmus Yilmaz said Friday. Despite this, the current account deficit – one of the principal targets of the measures – will continue to rise in the first quarter due to base effects. Mr Yilmaz added he did not foresee a change in policy when his governorship ends in April.
The statements add up to declaration of success – but there was a caveat. Oil prices, driven higher by events in Libya, created a “new situation”, Mr Yilmaz admitted. Turkey’s rate-cutting, reserve-requirement-raising policy has so far been possible thanks to falling inflation and fairly high unemployment. (Rate cuts in an inflationary environment would have been far more dangerous.) If oil prices were to remain high, they would create an inflation risk that might constrain Turkey’s monetary plans. For now, as long as Saudi Arabia and its oil reserves stay out of the current turmoil, many believe the oil price shock will be short-lived.
Colombia raised rates 25bp late on Friday, the first rise since the financial crisis. The move, which took markets by surprise, takes the Bank’s key intervention rate to 3.25 per cent, compared with 10 per cent before the cuts began. Colombia also said it would continue its $20m-a-day dollar purchasing programme, through which it is trying to dampen appreciation of the Colombian peso.
Peru, meanwhile, yesterday raised its reserve requirement ratio for the second time in two months. The quarter-point rise applies to sol- and dollar- denominated bank reserves and is intended “to keep inflation expectations anchored within the 1 percent to 3 percent target range,” the bank said in a statement, according to Bloomberg. Peru also raised rates in January and February, taking the key rate from 3 to 3.5 per cent since the start of the year.