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Markets were rocked when then-President of the Central Bank (CBRT), Murat Çetinkaya, was removed by decree of the President on July 6, 2019. President Erdogan announced that Çetinkaya was fired for not complying with the order to cut rates interest.
Uysal, who was appointed to replace Çetinkaya, went for a record rate cut, preferring not to increase the policy rate despite market expectations and TL’s strong depreciation, but the end was no different than Çetinkaya. Uysal was removed from office in the middle of the night with the President’s Decree, and former Finance Minister Naci Ağbal was appointed in his place.
Ağbal is a name with credit in the market due to his performance in the Ministry of Finance and Presidency of Strategy and Budget, but a difficult task awaits him.
The Uysal presidency will be remembered with very rapid interest rate cuts, loss of reserves, billions of dollars transferred from the back door to state banks for exchange rate intervention, record monetary expansion and inflation that continues to hover around the two digits.
Here are the highlights of TCMB’s Uysal period …
1- INTEREST: JET DECREASE IN POLITICAL INTEREST
CBRT’s policy rate, which was 24 percent when Tame took office, dropped to 8.25 percent in the period from September 2019 to May 2020.
With the reduction of 1575 basis points in total signed in 9 meetings, the policy rate was reduced 3 points below inflation. Turkey’s high country risk premium (CDS) is also added, it was an unfavorable financial climate for investors, but the government wants to register a credit boom.
2- INCREASE OF INTEREST ON THE BACK DOOR
Although the CBRT kept the policy rate constant due to the depreciation of TL and the increase in inflation, it gradually increased the cost of financing banks with other instruments since the end of July. The demonstrated rush to lower the interest rate was not demonstrated when an increase was needed.
The CBRT’s weighted average cost of financing, which was 23.87 percent when Tame took office, fell to the lowest level in the past 6 years at 7.34 percent on July 16 and reached 14.12. percent yesterday.
Thus, there was a disguised increase in the interest rate of approximately 700 basis points in the period of 3 1/2 months.
The policy interest rate, on the other hand, fell to 10.25 percent in September, but remained below inflation.
This implicit rate hike from the back door did not satisfy the market and the currency continued to break records.
3- INFLATED: DOUBLE HOUSE
When Tame took office, consumer inflation was 15.72 percent. That proportion fell to 8.55 percent in October 2019, but then rebounded and remained in double digits at 11.89 percent in October 2020.
OECD countries where average inflation was 1.3 percent among the countries with the highest inflation break with Turkey differently.
The latest IMF forecast for 2020 inflation forecasts a world average of 12 percent of 2.8 percent for Turkey. Inflation in our neighboring Greece is at the -2 percent level.
4- RESERVATIONS: DROP TO LESS FOR THE FIRST TIME
One of the most controversial topics of the Murat Uysal period was the CBRT reserves.
When Uysal took office, the CBRT had $ 74 billion 123 million of gross foreign exchange reserves and $ 23 billion 123 million of gross gold reserves. As of October 30, 2020, these figures decreased to $ 42 billion 259 million in foreign currency and rose to $ 42 billion 147 million in gold.
The CBRT’s total gross reserve decreased from $ 97.2 billion to $ 84.4 billion.
The CBRT net reserve, which was $ 32.7 billion on July 12, 2019, decreased to $ 18.9 billion on October 30, 2020. The net reserve is the figure obtained by deducting the currency. foreign currency and the gold that banks hold in the CBRT of the gross reserve.
At the end of September, the total amount of foreign currency and gold lent by the CBRT from domestic and foreign banks in TL terms through swap transactions is $ 62.9 billion. Of this figure, $ 15.6 billion correspond to swap transactions with the central banks of Qatar and China, and $ 47.3 billion with national banks.
When the total amount of the swap is deducted from the gross reserve, the figure reaches $ 11.5 billion.
The net reserve excluding the swap is at the level of -44 billion dollars. When Tame took office, the net reserve, excluding the swap, was + $ 14.6 billion.
The main reason for the collapse of reserves was the transfer of foreign currency to the public banks through the back door to sell dollars and maintain the rate.
Experts estimate that in the January-September 2020 period alone, $ 84.5 billion of foreign exchange reserves were spent. In 2019, in this way, 31.9 billion dollars were spent on reserves.
During the pandemic, the doors of the United States Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of Japan (BoJ) were stolen for redemption, but no results were obtained. The $ 5 billion swap line between the Central Bank of Qatar and the CBRT has been increased to $ 15 billion.
5- DEPOSITS: EXCHANGE OF EXCHANGE AND GOLD CONTINUED
When Tame took office, residents’ foreign currency deposits (dollars, euros, gold, and others) in banks totaled $ 185.3 billion. As of October 30, 2020, this figure is at a record level with $ 221 billion 38 million.
The 16-month increase in foreign currency deposits is $ 35.7 billion.
When Tame took office, inflation was 15.72 percent and the average deposit rate in TL was 22.26 percent. In other words, TL deposits were attractive due to high real interest rates.
However, while the average deposit rate fell to 7.24 percent at the end of July, inflation remained at 11 percent and negative real interest was one of the main factors in the flight from TL to foreign currency. While the inflation rate was 11.89 percent in October, the average deposit rate is still below inflation at 11.34 percent. Citizens and businesses prefer to stay in foreign currency rather than negative real interest on TL deposits.
6- EXPLOITATION OF SUPPLY OF MONEY AND CREDITS
In the docile period, the M1 money supply, which is the sum of money in circulation and time deposits in banks minus cash in bank vaults, has risen to a record level this year.
This figure, which was TL 580 billion when Uysal took office, reached TL 1 trillion 275 billion on October 30 and registered a large increase.
In this period, the volume of loans in TL from banks increased from TL 1 trillion 503 billion to TL 2 trillion 301 billion. The 16-month increase was approximately TL 798 billion.
Since the beginning of the year, the money supply increased in Turkey, the clear difference ranked first among developing countries.
7- RESERVE FUNDS AND TRANSFER OF BENEFITS TO THE TREASURE
After Uysal took office, the CBRT Law was amended and TL 40.8 billion were transferred to the Treasury, which the bank kept in its safe as a “fund of necessity”.
Of CBRT’s earnings in 2019, TL 44.5 billion were transferred to the Treasury in January and May.
During the Uysal period, when TL 10.6 billion was added to corporate tax, the total amount transferred to the Treasury reached TL 95 billion.
8- PURCHASE OF BONDS
When Tame took office, the amount of securities on CBRT’s balance sheet, which was TL 15.8 billion, increased to TL 87.9 billion as of November 5.
CBRT made a monetary expansion by buying secondary market bonds and indirectly financed the Treasury.
In this way, while reducing the Treasury’s borrowing costs, it allowed banks to buy bonds again.
9- KURDA RECOR ÜSTÜNE RECOR KIRILDI
When Tame took office, the dollar / TL rate was around 5.60. Yesterday, the exchange rate broke a record with 8.57. Thus, the record of 7.23 registered in August 2018 during Rabip Brunson’s crisis with the United States during the Murat Çetinkaya period was broken.
According to experts, the decline in foreign exchange inflows and geopolitical tensions during the epidemic period, as well as the insistence on negative real interest rates, were also effective in raising the exchange rate.
10- MOVED TO ISTANBUL
The process of moving the CBRT from Ankara to Istanbul, which has been talked about since 2007, officially began during the Uysal period. The CBRT, which rented the building under SDIF control in Ümraniye, moved some of its units here.
Construction continues on the CBRT building at the Istanbul Financial Center in Ataşehir. It was announced that the moving process was continuing gradually.
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