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crisis continued to unsettle the nation, a curious announcement arrived on August 11 from the interior ministry.
The PKK, aka the Kurdistan Workers’ Party, may exchange FX in big amounts to meet its financing needs for its winter settlement, the ministry said in a circular sent to governorships in Turkey’s Kurdish-populated southeastern provinces.
Turkey has seen countless absurdities in its four-decade long war with the separatist PKK. However, the interior ministry’s statement on the PKK’s FX exchange outlook at a time of an ailing lira was a first and it could not be ascribed any meaning.
On August 13, the central bank opened a one-month repo auction in traditional method and the costs were at above 10%. Accordingly, the central bank introduces a quota on the funding it will provide at the one-month repo auctions and banks bid in interest rates. Under regular one-week repo auctions, the interest rate is constant at 8.25% and banks bid in amounts.
In the following period, at the central bank’s one-month repo auctions conducted according to the traditional auction method, rates have ​shaped around 11.25%. This does not mean that 11.25% is enough, but it suggests that over the next month the cost of funding is supposed to approach the late liquidity rate.
The CBRT’s current funding composition, previously criticised as “confusing”, is clearly a knotty problem as things stand.
Turkish central bank open market operations funding composition (@scornek).
Turkey’s central bank monetary policy committee (MPC) on August 20 ​kept​ its main policy rate (the one-week repo) at 8.25%.
As a result of the MPC decision, the 9.75% overnight lending rate remained 150bp higher than the headline rate and the late liquidity window rate 150bp higher at 11.25%.
Technically, the authority, as it ceases to provide funding at its cheapest rate to put some kind of brake on the lira, has the option to raise its open market operations funding rate to the late liquidity window’s 11.25%.
Still selling​. With foreign portfolio investors still selling lira assets at whatever price they can fetch, presently the real actor in the destiny of the lira is locals. And they still have no attractive deposit rates that would encourage them to keep their money in the currency.
The next scheduled MPC meeting will be held on September 24​. An emergency meeting remains a possibility depending on the course the lira takes from here.
13​ TURKEY Country Report​ September 2020 ​ ​www.intellinews.com