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The Central Bank (CBRT) once again left the markets in the opposite corner and kept the policy rate at 10.25 percent. Parallel to the rise in the exchange rate and inflation, the CBRT, which has been following the market since July to raise interest rates in disguise, noted that the steps covered from the back door will continue.
Holding the policy rate constant, the bank signaled the continuation of implicit interest rate increases by pulling the late liquidity window (GLP) interest rate, which banks should use when they fall into their cash deficit at the end of the day, from 13.25 percent to 14.75 percent. The CBRT’s weighted average funding rate, which fell to 7.34 percent in July, rose to 12.52 percent yesterday.
While the dollar rate rose 20 cents after the decision, it reached 7.98, while the euro / TL rose 24 cents to 9.44.
Piotr Matys from Rabobank, economist Dr. Murat Kubilay from the University of Işık, Assoc. Dr. Evren Bolgün, Cem Başlevent from Bilgi University and Caner Özdurak from Yeditepe University evaluated the interest rate decision on sozcu.com.tr.
Piotr Matys, Emerging Markets Strategist at Rabobank
“THE COST CAN BE HEAVY”
“I was expecting a 200 basis point increase in the policy rate. Stating that this step was necessary for the stability of the TL and the CBRT to regain their credibility, Matys said: “If the CBRT believes that the increase of 200 basis points in the past month is enough to regain credibility, the markets will carry the Dollar / TL rate at a record and this belief will be given to President Murat Uysal. provided a reality check for, “he said.
“Some might argue that the CBRT adjusts liquidity by increasing the difference between the GLP and the overnight interest rate to 300 basis points, but the CBRT does not have enough credibility in the fiction of monetary policy,” said Matys, ” increasing the policy rate would be a much more efficient and productive step. As the decline in TL’s value shows, the cost of today’s decision can be high. “
Dr. Murat Kubilay
“NO SHIELD HAS BEEN CREATED AGAINST POTENTIAL SANCTIONS”
Calling the decision “a surprise contrary to the optimistic expectations of market players regarding the recent rise in interest rates,” Dr. Kubilay said: “The policy rate remained constant; “We can interpret it as optimism that the administration of the economy ignored possible increases in the exchange rate or that the worst is over.”
“The text of the decision affirms that the decline of the economy as a result of the pandemic caused an overheating with the measures taken and this will return to normal month by month. Consequently, it is assumed that a limited increase in interest rates and the loss of momentum of loans will be sufficient in the fight against the exchange rate and inflation, ”said Kubilay, and listed the possible risks as follows:
“Although the text includes the possible effects of the new jump created by the pandemic in Europe and the United States on foreign trade and the appetite for global risk, they were not taken into account in the interest rate decision. Furthermore, after the November 3 US presidential election, no shield was created to guarantee investor confidence against possible financial penalties stemming from the Halkbank case with the S-400.
The optimistic expectations of the economic management do not correspond with those of the national and foreign investors. Therefore, as long as there is no extra-economic surprise and a large positive shock, the LT depreciation is likely to continue. There is also the possibility that beyond the US elections and foreign political tensions they could cause a speculative attack. “
Assoc. Dr. Universe Bolgun
“THE INCREASE IN HIDDEN INTEREST CONTINUED, IT WILL BE A NEW EXPERIMENT”
Noting that the policy rate has increased only 200 basis points, while there has been an implicit increase of more than 500 basis points since July, Bolgün said: “With today’s decision, the Center says: ‘Ankara does not allow it, I can’t raise official interest, I’ll continue to cover it. ‘ “It will be a new experiment in monetary policy.”
Stating that there is a difference between the expectations of what the Center should do and what it will do, Bolgun said that this is wrong, that there is no such central bank practice in the world and the loss of credibility hurts the market and the fight. against inflation.
Başlevent said: “The expectation of a second rate hike from CBRT was optimistic. In fact, there was no such hike,” Başlevent said. “The increase in GLP can make the first negative reactions disappear.”
Dr. Caner Özdurak
“THEY LOOKED FOR INTEREST COSTS TO INCREASE WITH A CURRENT INCREASE”
Özdurak said: “The CBRT had to make a decision taking into account the gap between the effect of a possible increase in interest rates and the cost of financing it would bring to companies,” said Özdurak, “The increase in the rate of interest could cause a decrease in the exchange rate in the short term, but this time the financing costs of the companies would increase. ” did.
“Turkey’s economy is now in a different phase of the disease and the medicine of interest may not work against the disease,” said Özdurak, “the effect of increased production will set cost increases. There was demand inflation due to the increase in credit, now there will be cost inflation ”.
Özdurak continued as follows:
“Turkey can be invested by the credit rating agencies not seen as a country and increases in interest rates could provide the desired inflows of foreign capital.”
On the other hand, by ignoring the expectation of an increase in interest rates in the central markets, it surprised the market without raising interest directly and resorted to indirect means such as late liquidity, damaging the reputation it had already lost ”.
“A BRIGHT RED LIGHT FOR THOSE WHO EXPECT GREEN LIGHT”
BlueBay Asset Management Timothy Ash, “I think this decision on behalf of many foreign investors see the green light to bring money back to Turkey to (MPC) was watching closely. With this decision, they saw a bright red light,” he said.
Tera Investment economist Enver Erkan said: “With the active use of GLP, we conclude that it will continue to close the back door by moving away from the basis of simple monetary policy.”
Erkan also said: “In a period of rapid deterioration in inflation expectations, the risk of further depreciation of the TRY and further deterioration in the inflation outlook has increased by weakening the relationship between the Central Bank financing rate and the policy rate “.
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