GS Sees CBRT RRR Tweaks as Subtle Policy-Tighteners

• CBRT made four changes to its reserve requirement policy, with the stated aim of improving the effectiveness of the monetary transmission mechanism.

1) TRY RRRs increase 200bp to average of 7.7% for all liability types & maturity brackets.

2) upper limit of the facility enabling banks to hold FX against TRY reserve requirements (ROM) decreased to 20% from 30%

3) upper limit of the facility enabling banks to hold gold against TRY reserve requirements lowered to 15% from 20%

4) Remuneration rate on TRY-denominated required reserves increased by 150bp to 13.5%.

• CBRT expects TRY-denominated required reserves to increase by TRY25bn and FX-denominated required reserves to fall by US$0.5bn, under the assumption that reserve option utilisation rates remain unchanged for the tranches below the threshold.
• GS notes that the RRR adjustment is different from last year's tweaks. Whereas FX reserve requirements have been increased in the last few adjustments to support FX reserves, this one relates to TRY reserve requirements.
• GS sees this as a marginal tightening, given FX deposits become less useful for banks on the margin (reduced ROM limits) and increase the need for TRY financing (higher TRY reserve requirement ratio). May result in increased TRY deposit rates and in lending rates, as banks try to maintain their interest margin. However, impact is somewhat reduced by the increase in the remuneration rate.
• Notes one risk being that some market participants may interpret it as the CBRT being unable to deliver tightening through a regular hike and instead choosing required reserve measures to tighten further, especially because the decision comes at a time when the TRY has been underperforming. Nevertheless, from a macroeconomic perspective, GS sees it as a move that marginally tightens the policy stance.