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he added.
“While robust credit growth during the crisis is — overall — a good thing, it could create problems further out. It will exacerbate the misallocation of resources in China, which will constrain potential growth there. A similar problem is brewing in Turkey. With policymakers funnelling credit into unproductive sectors, this could create long term economic distortions which will be difficult to unwind,” he concluded.
8.2 Central Bank policy rate
Turkey’s central bank has been actively using six different funding rates with new funding channels added to its already complicated funding mix amid the response to the coronavirus (COVID-19) crisis, BloombergHT reported on July 23.
The last two rate-setting meetings of the authority have kept the headline policy rate (one-week repo) unchanged at 8.25% since June. However, this does not mean that the national lender’s open market funding rates remain unchanged since its main policy rate has not been its main funding channel for a while now, BloombergHT noted.
The media outlet also recapped on how the significance of the one-week repo rate as the policy rate has declined since Erdem Basci, the first of the central bank’s run of three ‘non-central banker’ governors, introduced the so-called interest rate corridor in 2011.
Within the interest rate corridor, introduced into central banking literature by Basci, the Turkish central bank used to push local lenders to borrow at its overnight borrowing window while offering limited funding in its one-week repo auctions. Later down the line, the late liquidity borrowing window was also added to the corridor.
As a result, the former Turkish economy administration team (Deputy PM Ali Babacan, Finance Minister Mehmet Simsek and Basci) implicitly hiked rates while dancing around constant ‘Erdoganomics’ pressure from then PM Recep Tayyip Erdogan for cheaper money.
BloombergHT also recalled how the corridor policy was criticised as “complicated” until it was temporarily lifted in May 2018.
Coincidentally, the USD/TRY rate started breaking historical records in May 2018, commencing a trend that spiralled downwards until it ended in the
53 TURKEY Country Report August 2020 www.intellinews.com
