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2.2​ ​QE: Central bank shows “unprecedented speed” in bond buying
Stimulus provided by the Turkish central bank has far outstripped that of its EM peers over the past year. The national lender’s has blazed a trail, slashing its policy rate all the way to 8.75% in April from the 24% seen last July, with combined cuts of 1,525bp in just ten months.
The central bank ​said​ on March 31 that it would ramp up government debt buying and offer new pools of cheap funding to curb the fallout from the pandemic’s growing impact on the country.
The crisis measures allow primary dealers to, for a temporary period, sell the central bank debt they purchased from Turkey’s Unemployment Insurance Fund, which will be under pressure as jobs disappear and the economy contracts.
The CBRT also extended TRY60bn ($9bn) worth of rediscount credits and added more lending options at 150bp below its 8.75% policy rate. It said the moves would lay on much needed credit to companies and liquidity to government debt markets. The weighted average cost of its funding fell to 8.99% on April 24.
The central bank has been buying up domestic government bonds at an “unprecedented speed” with its purchases breaking consecutive records.
On April 17, the central bank doubled its limit for bond buying this year (See section 8.2 for details).
An interesting form of quantitative easing (QE) was, meanwhile, introduced when the central bank announced that it was donating TRY100mn to Erdogan’s campaign to raise funds to help those in need amid the pandemic.
Turkish banking watchdog BDDK has sent a letter to some unnamed banks asking them to ​prevent borrowers from using debt to invest in foreign currencies​, gold and equities, people with knowledge of the matter told Bloomberg on April 7.
“Even if policymakers can prevent all lira leaks to offshore markets, one should bear in mind that may not prevent locals’ foreign currency demand,” Evren Kirikoglu, an independent market strategist in Istanbul, told the news agency.
With the COVID-19 pandemic hugely exacerbating core difficulties that in the past two years have run cracks through Turkey’s financial markets and, more recently, public finances, the government seems determined to print as much money as it sees necessary to keep the already troubled Turkish banking industry afloat. Foreign currency risks, which over the years have been managed by officials intervening in the industry, remain a clear and present danger.
Of course, no one really believes in the official inflation data and the listed level of the USD/TRY rate.
The BDDK ​said​ on April 12 it was slashing the limit for banks’ foreign-exchange swap, forward and option transactions with foreign entities to 1% of a bank’s equity, from 10% previously.
7​ TURKEY Country Report​ May 2020 ​ ​www.intellinews.com