Turkey holds rate for 3rd time-withdraws more liquidity
Turkey holds rate for 3rd time:
Participating Committee Members
Murat Uysal (Governor), Murat Çetinkaya, Ömer Duman, Uğur Namık Küçük, Oğuzhan Özbaş, Emrah Şener, Abdullah Yavaş.
The Monetary Policy Committee (the Committee) has decided to keep the policy rate (one-week repo auction rate) constant at 8.25 percent.
While global economic activity has shown signs of partial recovery in the third quarter following the normalization steps taken by several countries, uncertainties on global economic recovery remain high. Advanced and emerging economies continue to maintain expansionary monetary and fiscal stances. The pandemic disease is closely monitored for its evolving global impact on capital flows, financial conditions, international trade and commodity prices.
Economic recovery, which started in May following gradual steps towards normalization, is gaining pace. Recent monetary and fiscal measures that aim to contain negative effects of the pandemic on the Turkish economy contributed to financial stability and economic recovery by supporting the potential output of the economy. While commercial loans have recently started to normalize, consumer loans have remained strong. The recent upturn in imports, which has resulted from deferred demand as well as pandemic-related liquidity and credit policies, is expected to moderate with the phasing out of these policy measures. Although tourism revenues declined due to the pandemic, easing of travel restrictions has started to contribute to a partial improvement. The recovery in exports of goods, relatively low levels of commodity prices and the level of the real exchange rate will support the current account balance in the upcoming periods.
Along with the pandemic-related rise in unit costs, exchange rate and credit developments restrain the demand-side disinflationary effects, and the trends of core inflation indicators have increased. As the normalization process continues, supply-side factors, which have prevailed recently due to pandemic-related restrictions, will phase out. The gradual normalization of pandemic-specific financial measures and recent tightening steps taken in liquidity management are judged to support macrofinancial stability. However, depending on the course of the pandemic, uncertainties regarding domestic and external demand conditions remain significant. Accordingly, the Committee decided to keep the policy rate unchanged, while continuing with liquidity measures.
The Committee assesses that maintaining a sustained disinflation process is a key factor for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery. Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance. In this respect, monetary stance will be determined by considering the indicators of the underlying inflation trend to ensure the continuation of the disinflation process. The Central Bank will continue to use all available instruments in pursuit of the price stability and financial stability objectives.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days.”
TL and FX reserve requirement ratios have been raised for banks fulfilling real credit growth conditions.
As part of the normalization process, in its press release of 18 July 2020, the CBRT announced that it increased FX reserve requirement ratios by 300 basis points in all liability types and maturity brackets for all banks. Now, the CBRT has decided to raise FX reserve requirement ratios for banks fulfilling real credit growth conditions by 700 basis points for precious metal deposit accounts and by 200 basis points for all other FX liabilities for all maturity brackets.
Moreover, in line with the recent steps taken towards the Turkish lira liquidity management, for banks fulfilling the real credit growth conditions: TL reserve requirement ratios have been increased by 200 basis points for all deposits / participation funds liabilities with a maturity up to 6 months and other liabilities with a maturity up to 1 year, and by 150 basis points for other liabilities with a maturity up to 3 years.
As a result of this decision, approximately TRY 17 billion and USD 8.5 billion of FX and gold liquidity is expected to be withdrawn from the market.
Thus, with the revision made on 18 July 2020 and this current arrangement, USD 17.7 billion of FX and gold liquidity, which has been injected into the market since 17 March 2020 due to the reduction of FX reserve requirement ratios and the fulfilment of real credit growth conditions by some banks for the first time, will be fully withdrawn as part of the normalization.
These changes will be effective from the calculation date of 21 August 2020 with the maintenance period starting on 4 September 2020.” source centralbanknews.