CBRT commits to ‘limitless’ QE to maintain stability
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CBRT commits to ‘limitless’ QE to maintain stability 20 July 2016 Ankara Reporter: Drew Nicol
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The Central Bank of Turkey has pledged to provide the country’s banks with limitless liquidity to ensure financial stability in the wake of recent economic and political turmoil.
The central bank set out several financial measures to minimise market disruption, which has been linked to the failed military coup that took place on 15 July.
In a statement on its revised monetary policy, the central bank acknowledged Turkey’s controversial political troubles, stating that, “recently, domestic developments have led to fluctuations in financial markets”.
To combat these fluctuations, the Central Bank of Turkey confirmed that the commission rate for intra-day liquidity going forward will be zero.
Banks will also be allowed to place foreign exchange deposits as collateral without limits for required Turkish lira liquidity.
All markets and systems, including the electronic fund transfer and the electronic security transfer and settlement systems, will be left open until final settlement of transactions.
Shortly after these measures were announced, the central bank also adjusted its short-term interest rates to better suit the country’s market environment.
Overnight interest rates has been reduced from 9 percent to 8.75 percent, while the borrowing rate and one-week repo rate were kept at 7.25 percent and 7.5 percent, respectively.
The borrowing rate for the late liquidity window, which is held between 4pm and 5pm, has been kept at 0 percent, while the lending rate has been reduced from 10.5 percent to 10.25 percent.
Piotr Matys, a research analyst at Rabobank, suggested that the political fallout caused by the attempted overthrow of Turkey President Recep Erdo?an may make foreign investors more cautious and lead them to reduce their exposure to Turkish assets.
“A wave of capital outflows cannot be excluded, which would exert a selling pressure on the lira. A more volatile and depreciating currency accompanied by concerns about more terrorist attacks may lead to a weaker economic activity as households shift to a saving mode and corporates postpone strategic investment decisions,” said Matys.
“The Central Bank of Turkey may have to pause its process of simplifying the monetary policy by narrowing the interest rate corridor at the time when prominent officials expect policy makers to cut rates far more decisively to support investments and consumption.”
“Escalating political pressure on the Central Bank of Turkey will undermine already damaged confidence amongst foreign investors following recent dramatic events.”
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