Turkey's central bank, faced with a record-low currency and widening current account deficit, further left behind ultra-loose measures adopted during the coronavirus pandemic when it raised on Monday the remuneration rate on required lira reserves.
The weakness of the lira, near an all-time low of 8 to the dollar, has complicated the economy's rebound from a sharp contraction in which pandemic-related restrictions brought tourism, exports and production to a near standstill for a time.
Surging imports such as gold expanded the current account deficit to $4.63 billion in August, data showed on Monday, while unemployment remained elevated above 13%.
The central bank has in recent weeks continued so-called backdoor policy-tightening measures to support the lira, even after it unexpectedly hiked its key interest rate by 200 basis points to 10.25% last month.
Analysts were split whether the latest move - raising all remuneration rates on required lira reserves by 200 basis points - suggested the bank would tighten policy again at a meeting on Oct. 22.
"Another outright rate hike is possible if the lira continues to weaken," said Win Thin of Brown Brothers Harriman.
The currency has logged a series of new lows against the dollar over the past two months, despite the central bank's efforts to restrict money supply. The moves have raised the average cost of funding to 11.64% as of Friday.
On Friday, the lira rallied after the bank raised the interest rate in the lira swap market.
On Monday, it said lenders that meet real loan growth requirements will have a 9% remuneration rate on lira required reserves, while the rate for others will be 2%. The new rates will be effective Oct. 16.
The bank also halved the commission rate on required reserves for forex deposits and participation funds.
The moves will improve financial stability and the monetary transmission mechanism, and lower transaction costs, central bank sources said.
The lira touched a new low on Friday and has lost as much as 25% of its value this year, mainly on concerns over depleted forex reserves and costly state interventions in the FX market.
One banker, who did not want to be named, said he did not expect a rate hike next week but added: "It is apparent that (the moves) brought optimism to the market."
The banker added that the average cost of funding is expected to rise to 12% on Monday as transactions conducted below the policy rate during the pandemic mature. Ankara lifted most coronavirus restrictions in June.
Unemployment stood at 13.4% in the June-August period, as the fallout from the COVID-19 pandemic continued to weigh on workers. The number of those employed dropped by 1.2 million people to 43.5%, compared to 46.4% in the same period last year.
