Page 12 - TURKRptFeb20

2020, the authority will sustain unorthodox practices . It is to use required reserves “in an effective and flexible way” in 2020 and it will back banks’ liquidity management via gold transactions against lira and forex (read this as more swaps). Currently, the central bank pays zero interest for the required reserves of lenders who fall short of its complicated and continuously amended loan growth targets.
Moreover, the authority is increasing its open market operations portfolio to 5% of its balance sheet. The central bank had TRY18.4bn worth of government bonds as of December 3 and its total assets stood at TRY627bn, 5% of which suggests TRY31.4bn , Ibrahim Aksoy of HSBC Portfoy told Reuters. The national lender will be able to help the Treasury redeem its TRY287bn of debt repayments scheduled for 2020, Aksoy also said.
Almost idle . The domestic borrowing market remains almost idle since a series of huge mistakes starting from last year while the external borrowing channels are also not promising.
The year of 2020 could be a troubling year for government financing.
Erdogan has so far had the power to order local private lenders and pension funds to finance the government and the central bank reserves.
The budget deficit is soaring despite transfers from the central bank, with the borrowing plan for 2020 up 50% y/y .
It is raining tax and price hikes and there are fresh plans to transfer more money from the central bank .
The policy text disclosed that the central bank will increase the number of its monetary policy committee (MPC) meetings to 12 next year from the eight meetings in 2019.
Concerns are still there over whether there will be an overshoot of monetary policy and a renewed depreciation in the currency.
In the event that the government loses control of the lira, essential monetary tightening will no doubt be delayed by Erdogan until the last moment, as happened in August 2018 when the USD/TRY rate hit a historical high of 7.24 .
2.5 Current account to deteriorate
Punishing recession after currency crisis suppressed imports causing ultra-intensive rebalancing. But economy faces heavy weight of maturing external debt. Deteriorating global outlook a further danger to recovery.
12 TURKEY Country Report OUTLOOK 2020 www.intellinews.com