Türkiye | CBRT stays hold & tightens via other measures

Summary

The CBRT maintained the policy rate (50%) and the range between borrowing and lending rates (600 bps). They remain cautious about the risks on inflation outlook. On financial stability concerns, they aim to sterilize excess TL liquidity stemming from the most recent domestic and foreign demand for TL financial assets.

Key points

• Key points:
• The CBRT raised the TL required reserve ratios, requiring much higher levels for KKM deposits. They aim to put disincentives on KKM deposits and facilitate conditions to speed up an exit.
• They also put a monthly cap of 2% on FC credits, similar to TL commercial lending, in order to support financial stability, reduce excess TL liquidity and prevent any opportunity apart from the companies’ commercial activity.
• Overall, the CBRT targets to eliminate the most recent downside pressure on TL deposit rates because of the decline in overnight TL rates on top of excess TL liquidity in the market.
• This will add new pressure on TL lending rates, since FC lending growth is also capped, commercial activity will be put under further pressure. Since aggregate demand is still stronger than supply, we will follow how the mix of these policies will affect the inflation outlook.
• We maintain our view that inflation is likely to get closer to the upper bound of the CBRT forecasted range (42%) and this will provide a limited room to start easing with very gradual steps in 4Q24. Yet, lagging fiscal measures and macro-prudential policies on retailer spending availability might delay the easing cycle to later.

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