Turkish central bank fixes interest rate on reserves in bid to boost lending

Turkey's central bank said on Saturday that from January it will offer a fixed interest rate on lira required reserves deposited by financial institutions, in a move aimed at boosting lending. The bank said the remuneration rate - the interest rate it pays on required reserves - for each quarterly period will be fixed at 400 basis points less than the one-week repo auction rate. Before, the rate varied from 300 to 500 basis points less than the average cost of funding, based on the volume of loans.
Is Yatirim economist Muammer Komurcuoglu said the move appeared to be aimed at spurring lending, as previously the central bank paid a higher interest rate out to banks that extended less in loans, as a way to encourage saving rather than taking on debt. "With the new system, the central bank is encouraging banks to give loans. We can say that the bank is aiming to boost growth through increasing loan volume and consumption spending," Komurcuoglu said.
Commercial banks are under pressure from the government to lower their interest rates as economic growth slows in the wake of a failed military coup in July and the emergency rule imposed since, which has made both investors and consumers cut back on spending.
The central bank said in its statement that the remuneration interest will be paid on the first business day following the end of the months of March, June, September and December.
In a separate statement on its website the bank said it was cutting the maximum contractual interest rate on credit cards to 1.84 percent from 2.02 percent, starting from next year. The bank also said the monthly maximum overdue interest rate will be set at 2.34 percent for Turkish lira and 1.97 percent for foreign currency transactions, in a bid to increase spending via credit cards. In an interview this week, Finance Minister Naci Agbal told Reuters Turkey was planning a wide range of measures to boost flagging growth, including monetary policy measures set by the central bank.