UPDATE 2-Turkish cenbank to use required reserves for fine tuning in 2020

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By Ece Toksabay and Daren Butler

ANKARA, Dec 5 (Reuters) - The Turkish Central Bank will use required reserves "in an effective and flexible way" in 2020 as a fine tuning tool in addition to its main policy instrument of short term interest rates, the bank said on Thursday.

The comment, in its monetary and exchange rate policy text for 2020, came after its governor said the bank will use required reserves to support real sector access to loans and loan growth.

The central bank will hold its final monetary policy meeting of the year on Dec. 12, a week after inflation rose by less than expected to 10.56%, increasing the chances of a significant cut https://tmsnrt.rs/2qbaDqO in its policy rate from the current level of 14%.

But, with a limit to how low the bank can push rates to stimulate loan growth and a broader economic recovery, it is looking to other tools such as required reserves regulations to help reach government growth targets.

"The central bank remains fully committed to cut interest rates as low as possible until market sends them a strong signal that the interest rates are too low," said Piotr Matys, senior emerging markets FX strategist at Rabobank.

At that stage "they will deploy these reserve requirement tools to encourage banks to lend more to revive economic activity," Matys said.

The central bank, which says it sets its monetary stance to leave a "reasonable" real rate, raised its policy rate to 24% last year but has lowered it by 10 percentage points in the last five months as inflation slowed.

Thursday's policy text also revealed the bank is increasing the number of its monetary policy committee (MPC) meetings to 12 next year from the eight meetings in 2019. In the past it held 12 meetings annually, but reduced the number to eight in 2017.

"This will allow the central bank to act much faster to changing circumstances," Matys also said.

The bank kept its inflation target at 5% and said it will continue to implement a floating exchange rate regime. The lira weakened slightly after the statement to 5.7495 from 5.7450 beforehand.

The bank also said it will maintain its policy to increase reserves as long as market conditions allow and that it would support banks' liquidity management through gold transactions against lira and forex.

(Reporting by Ece Toksabay and Daren Butler Additional reporting by Ezgi Erkoyun Editing by Dominic Evans)