About the CBRT RR regulation

about-the-cbrt-rr-regulation--20072012

About the CBRT RR regulation

The Central Bank increased the required reserve ratios in foreign currency by 300 basis points in all liabilities and maturity tranches for all banks. As part of the normalization process, with this decision to support financial stability, it is expected that approximately 9.2 billion USD of liquidity will be withdrawn from the market.

 

In Covid-19 period, we see that more liquidity was released for banks by reducing the required reserve ratios in order to limit financial effects. Adding to the increase in credit expansion with the decrease in interest rates, recently the effects brought the risk of heating the economy and increasing the demand-side inflation pressures. The Central Bank reduces the foreign currency-based sources of banks by obtaining more foreign currency-denominated deposits from banks. Due to the coefficient effect of foreign exchange deposits in asset ratio, keeping foreign currency is more costly and less attractive for banks. In this process, they can reduce FX deposits by applying negative interest rates. The swaps between the Central Bank and private banks will also decrease. It is known that state banks have foreign exchange deficit and private banks have foreign exchange surplus.

 

With the reserve requirement arrangement, gross foreign exchange reserves will be reinforced within the framework of liquidity withdrawn from the market, while net reserves will not be affected.

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