Over the weekend the Central Bank of the Republic of Turkey (CBRT) implemented the first changes to its monetary policy framework which were flagged in its 'Road Map During the Normalization of Global Monetary Policies'. Commerzbank notes the key takeaways of CBRT decission as follows:

CBRT now demands higher required reserve ratios for FX noncore liabilities across the maturity spectrum but especially in the 1 and 2 year space (up from 20% to 25% and 14% to 20% respectively).

CBRT will increase the remuneration rate for required reserves maintained in TRY by 150 bps, which will happen in 3 steps of 50 bps each on 1st September, 1st October and 1st December.

The steps are a necessary but insufficient policy innovation from CBRT, especially when it comes to stabilizing TRY in a material manner, as the policy is aimed at preventing TRY and TRY denominated assets from losing ground once global monetary policy normalization gets going later in the year with a first Fed rate hike, argues Commerzbank. Implicitly this means that CBRT have little intention of raising interest rates themselves, or at least in a size large enough to ward off speculation against TRY.