a money changer counts turkish lira bills at an currency exchange office in central istanbul turkey in this august 21 2015 reutersmurad sezer ankara june 14 reuters  the turkish central banks new requirement for banks to hold bonds against foreign exchange deposits has pushed yields sharply lower and according to analysts positioned the state as the dominant player in the debt market the move was one of several last week designed to utilise banks and bond markets to help cool rampant inflation and stabilise a sliding currency it also reinforced president tayyip erdogans unorthodox commitment to low interest rates read more the 10year benchmark bond yield has tumbled some 700 basis points since last thursday nights announcement which required lenders to hold bonds with at least fiveyear maturity amounting to up to 10 of their foreign currency deposit accounts the benchmark yield fell to 1878 on tuesday from 2157 at mondays close and 2572 last thursday analysts said this signalled a major drop in the treasurys longterm borrowing costs even as it left banks bearing the risks in recent years banks have preferred floatingrate bonds such as those indexed to the consumer price index cpi rather than fixedincome debt in their treasury borrowing due to rising inflation and turkeys easy monetary policy the cpiindexed bonds led to an increase in net interest income resulting in a 400 rise in banking profits in the first four months of the year banks had shifted to cpiindexed bonds to protect themselves from inflation said bilkent university faculty member hakan kara said but under last weeks regulation nonfixed coupon bonds such as cpilinked ones cannot be held for foreign currency with the new measures banks are told buy longterm fixedrate bonds and take the inflation risk said kara former chief economist at the central bank it is a very risky practice and another example of suppressing symptoms rather than permanent treatment turkeys annual inflation hit a 24year high of 7355 in may the lira dropped 24 versus the dollar this year after sliding 44 in 2021 in the wake of unorthodox rate cuts sought by erdogan who is trying to boost growth ahead of mid2023 elections the central bank said on tuesday fixedrate government bonds with a maturity of at least five years and with at least 4 years left to maturity will be accepted as securities in return for foreign currency deposits by endjune banks must hold lira fixedrate bonds amounting to 310 of such deposits with the specific requirement depending on their success in converting foreign currency to lira burcu aydin ozudogru a former revenue policies general manager at the treasury and a bilkent university faculty member said on twitter the move will relieve the treasurys longterm borrowing costs but increases the exchange rate and the risk of maturity differences on bank balance sheets a senior banker told reuters last week the regulation looks more like an arrangement to force banks to buy fixedrate government bonds there were 238 billion of forex deposits in the banking system as of june 3 official data show separate data show foreign investors financed 17 of treasurys liradenominated domestic borrowing at endapril down from some 25 six years ago writing by daren butler editing by jonathan spicer and emelia sitholematarise