Page 54 - TURKRptAug20

August 2018 Pastor Brunson Turkish lira crash (Donald Trump’s decision to bring in sanctions to crank up the pressure on Erdogan to release the detained American evangelical minister was a key factor in tipping the lira over the edge).
With the arrival of the COVID-19 crisis, Turkey’s monetary policy has entirely gone off the rails, with the central bank presently using six different funding rates.
- One-week repo rate, 8.25% (TRY66bn worth of funding was provided on July 22)
- Overnight repo for market maker banks, 7.25% (TRY35.5bn provided on July 22)
- BIST (Borsa Istanbul) overnight repo, 9.75% (TRY2.8bn provided on July 22)
- Targeted additional liquidity facility, 90-day repo, 6.75% (TRY10bn on July 14)
- 90-day USD/TRY swap auction, 8.05% ($1bn on July 22)
- 180-day USD/TRY swap auction, 7% ($1bn on June 26)
The problem with relying on ​the weighted average cost of funding data provided by the central bank in analysis is that it does not include all funding channels, including swaps​.
The former chief economist of Turkey’s central bank, Hakan Kara (​fired last year​), said the country’s interest rates should go no lower for now​, with a near-year-long easing cycle that came to a halt last month having driven inflation-adjusted borrowing costs to deep below zero.
A high risk premium for borrowing abroad is the biggest downside of Turkey’s policy of managing its international holdings, a consequence of its “nonstandard ways of using reserves to defend the currency and the opaque attempts to make up net reserves through various swap facilities,” Kara was also reported as saying.
“The authorities should formulate a better communication about why they are using this particular strategy and how it contributes to the stability of the economy and the welfare of the society,” Kara added. “Even the worst explanation would be better than not having one.”
54​ TURKEY Country Report​ August 2020 ​ ​www.intellinews.com