CBR interest rate hike to continue – Last Minute Türkiye and World News

SHAFAQNA TURKEY- CBRT has announced additional steps, most notably reserve requirements, that will amplify the effect of a gradual increase in interest rates. With the change in required reserves of Turkish lira to currency protected deposits (KKM), liquidity of around 500 billion Turkish lira will be permanently withdrawn. This move was achieved at KCM with a mandatory reserve requirement of 15% for all maturities, unlike other TL fields. The changes were published in the Official Gazette.

According to news from Anadolu Agency, the daily limit of cross-credits that provide support for export financing has been increased from 300 million Turkish liras to 1.5 billion Turkish liras.

Treasury and Finance Minister Mehmet Simsek, in a tweet on the increase in cross-country loans, said: “We will provide maximum support for exports, taking measures to balance domestic demand. We will direct the resources received from abroad for export and investment.”

The text of the MPC indicated that external financing conditions showed a “significant improvement” yesterday.

How do economists rate this?

Economists noted that the rise in interest rates below the expected level calls into question a healthy policy of normalization.

While economic officials say risk analysis requires gradual understanding, markets are concerned that interest rates remain low due to political caveats and find change “slow”.

Markets are trying to figure out which path to take in monetary policy, which they see as an important component in the transition from a state-controlled structure to post-election liberalization.

The CBR stated that “monetary tightening will gradually increase as needed until a significant improvement in the inflation outlook is achieved.”

However, inflation expectations are not optimistic in the short term, as the CPI in the markets will rise to 60% at the end of the year, and in this process there is a gradual tightening. JPMorgan expects the CPI to peak at 64% in May 2024.

“Expectations will be lowered”

Economist Haluk Buryumcekci said: “The fact that the second move in interest rates is more restrictive than the first will also dampen expectations for the final discount rate. We hope that these uncertainties will decrease a little more with the release of the Inflation Report, which will announce new inflation forecasts and a monetary policy strategy.

Since it will include a long-term consumer price outlook and the interest rate decision is lagging behind, the market will also be watching for announcements to be made along with next week’s inflation report. However, the Medium Term Program in September stands out with more comprehensive economic applications.

The CBR forecast for the end of 2023 is 22.3%. With the depreciation of the Turkish lira and higher taxes in July, the CPI is expected to rise almost double digits, with year-end CPI expectations revised upwards.

Rising to a peak of 27.05 this week, the dollar/Turkish lira remained close to its peak levels, albeit following a fluctuating course. The Turkish lira has depreciated 30.8% against the dollar this year, 20% of which was in June.

World Markets

Asian stocks tumbled as US tech stocks tumbled after the announcement of Tesla and Netflix balance sheets, while US dollar and US Treasury yields maintained their gains ahead of the week that major central banks will announce their interest rate decisions.

Investors believe that the Fed will stop tightening after the final rate hike in July, and they give only a 33% chance that the Fed will raise rates again by November.