Page 83 - TURKRptMay19

The use of the late liquidity funding, priced 3 percentage points above the benchmark 24% weekly repo policy rate, lifted the average cost of funding by 26 basis points to 24.36%. The facility is an extension of the central bank’s lender-of-last-resort mandate and is an expensive form of overnight funding. The facility also allows banks to balance liquidity allocations, though bankers say this is rare. One banker was quoted as saying the facility may have been used because of a trade-logging error noticed too late to be funded through other venues. “Banks could have tapped funding through a stock exchange or swap facility with qualified collateral. That’s why I’m thinking this was due to a logging issue noticed too late into the day,” the banker said.
April 8 saw a Turkish central bank announcement suggesting that the weighted average cost of funding (WACF) at its revived policy rates corridor would decline back to 24% from 25.5% .
Scrapped auctions. On March 22, in response to lira depreciation prior to the March 31 local polls, the central bank scrapped one-week repo auctions in which it imposes its main policy rate of 24% to fund local lenders and pushed local lenders to the overnight borrowing window at 25.5%. Meanwhile, it imposed a 25.5% interest rate on lira at the USD/TRY swap window. As a result, WACF gradually rose to 25.5%. On April 8, the central bank revived its one-week repo auctions and it also announced that it cut the lira rates at the swap window to 24%. “Reverting to the 'old' conditions, i.e. prior to 22 March when repo auctions were suspended, will help lower the WACF back to 24% from 25.5%, which is a form of monetary easing. USD/TRY reacted with two kneejerk moves up. The lira remains under pressure at the time of writing, trading at around 5.69. Risks arise from a Putin-Erdogan summit today [on April 8] and confusion around the vote recount in Istanbul and Ankara after last week's municipal elections,” Cristian Maggio of TD Securities said in a research note.
Economists expect Turkey rate cut delay until around July following volatility: poll. Economists expect Turkey’s central bank to delay cutting rates until around July, and to ease policy less aggressively than previously thought, a Reuters poll showed on April 5 after two weeks of volatility in the country’s financial markets. The poll’s forecasts for the year-end policy rate ranged from 17.5% to 24% (where it stands now), with a median of 20.75%. The central bank has kept the current rate since last September when the Turkish economy was attempting to pull away from the currency crisis that subsequently tipped it into recession. The poll further showed that economists expected the national lender to cut rates this year by a median total of 325 basis points, down from a median of 500bp anticipated in the previous Reuters poll, carried out in late February. Respondents drew attention to stubbornly high inflation, which remains around 20%. A sharp drop in the lira on March 22 set off a week of volatility ahead of the Turkish local elections. It prompted the central bank to stop one-week repo auctions from March 25, effectively raising its funding rate by at least 150bp. It was seen as a stop-gap tightening of policy. Ten out of 11 economists in the Reuters poll predicted that the central bank would leave its repo rate unchanged at a policy meeting at the end of April, while one economist expected it to raise its rate to 25.5% to match average weighed cost of funding. “We expect inflation to come down substantially in the second half of 2019 due to the combination of base effects and economic slowdown,” Nora Neuteboom, economist at ABN Amro, was cited as saying, adding that she expected the first rate cut, by 125bp, in July. “We expect...a total easing of 500 [bp] throughout the second half of 2019, albeit this is largely dependent on the market reaction to the first rate cut and the future inflation data,” Neuteboom added. Asked about timing, three economists predicted the first rate cut would come in June while five pointed to July. One economist predicted September, another December, while one expected the central bank to leave rates unchanged throughout this year. A previous poll showed most of the rate cut expectations focused on a June monetary policy meeting.
83 TURKEY Country Report May 2019 www.intellinews.com