Turkey's central bank said on Thursday that it will provide an incentive for the conversion of firms' foreign exchange obtained from abroad into Turkish liras to support the "liraization" in commercial activities.

Under its Monetary Policy and Liraization Strategy for 2023, the Central Bank of the Republic of Turkiye, or CBRT, would provide firms, who sell their forex from abroad to the central bank, a FX conversion support corresponding to 2 percent of the amount converted into Turkish liras, in return for their pledge, which according to Reuters was that firms will not buy forex for a period decided by the central bank.

Firms, who sell at least 40 percent of the foreign exchange they have brought into the country from abroad to the CBRT, will be able to deposit the remaining part of the forex they brought from abroad into conversion accounts that protect those lira deposits against foreign exchange depreciation, the bank said.

In return for their pledge, firms will be provided with a FX conversion support of 2 percent of the amount converted into Turkish liras, the bank added.

Banks will determine if the forex sold to the CBRT and forex to be converted into Turkish lira deposit and participation accounts have been obtained from abroad.

Read more: Turkish Consumer Confidence Strongest In 16 Months

Elsewhere, Bloomberg reported that the CBRT is planning a new regulation to require banks to hold collateral for forward contracts, in a bid to reduce demand for hard currency in the spot market. This measure is meant to deter banks from selling currency derivatives to their customers, the news outlet reported, citing unidentified people close to the discussions.

The Turkish lira is trading near record lows and has been among the worst performing emerging market currencies in 2022. The central bank aims to keep it stable to rein in the country's runaway inflation.

Last week, the central bank left its key interest rate unchanged at 9.00 percent for the second straight month as inflation slowed notably from near 85 percent to a nine-month low of 64 percent.

The bank has lowered the policy rate by a cumulative 500 basis points since last August.

Later on Thursday, CBRT Governor Sahap Kavcioglu is set to present the first quarterly inflation report of this year that will reveal the price projections and give hints on the interest rate path.

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