August 9, 2016 / 2:01 PM / a year ago

UPDATE 1-Turkish central bank cuts reserve requirement to boost liquidity

(Adds analysts’ comments, background)

ISTANBUL, Aug 9 (Reuters) - Turkey’s central bank cut its requirement on Tuesday for the reserves banks must hold, as part of an effort to increase the amount of cash available to the Turkish economy.

The central bank said its moves could provide up to 1.1 billion lira ($370 million) and $600 million to the financial sector.

Reserve requirement ratios for banks were cut by 50 basis points, according to a statement. The central bank also said it was adjusting reserve option coefficients for some of its foreign exchange and gold facilities, a measure of how much gold or forex a bank may hold as part of its reserves.

Turkish banking stocks rose 1.6 percent after the announcement.

The changes are intended to reduce funding costs for banks, which may lead to lower loan rates. They come after Turkey’s currency, the lira, weakened to record lows against the dollar following a failed coup last month.

“We estimate that these moves should result in ... 0.5% contribution to banks’ annual earnings,” said BGC Partners economist Ozgur Altug.

Altug had forecast such a move in a note issued before the central bank statement, saying such steps might be taken to convince banks to cut their loan rates.

A state of emergency declared after the July 15 coup exacerbated the lira’s losses, but Central Bank Governor Murat Cetinkaya subsequently said the bank’s promise of unlimited liquidity had calmed volatility.

“This is a step towards preventing a possible liquidity squeeze in markets. Lately the central bank has been providing daily liquidity of 108-110 billion lira to banks, so today’s move will have a limited impact on funding costs,” said Is Investment economist Muammer Komurcuoglu.

$1 = 2.9810 liras Reporting by Seda Sezer; Editing by Daren Butler

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