CBRT not to change interest rates, continue liquidity management

In the policy statement; It is emphasized that financial stability will be supported with the gradual normalization of financial regulations specific to the epidemic period and tightening steps taken within the scope of liquidity management, while the downside effects of demand-side inflation are limited due to exchange rate and credit developments. The effect of exchange rate volatility on inflation may increase the range of deviations from inflation forecast that may occur due to pandemic conditions. The CBRT, which is in the phase of normalizing the cheap and abundant liquidity applied within the scope of the coronavirus, takes these tightening steps more frequently and rapidly in the market environment where TRY depreciates to historical low levels against USD. In this context, the Central Bank, which stopped funding from the 1-week repo and prompted banks to borrow from higher bands, provided liquidity mainly around 11.25% late liquidity rate within the scope of the traditional repo auctions implemented recently, and at the same time, by reducing the borrowing facilities applied on an overnight basis, banks’ emergency liquidity has led them to focus more on the late liquidity window. This situation also shows that TRY interest rates will continue to increase in the market.


In this context, it is seen that the Central Bank will tighten and continue to increase the weighted funding cost by using TRY liquidity measures under the current conditions without turning to an official interest increase. We could expect the Central Bank to make a technical adjustment on the active interest corridor side as well, possibly by raising the overnight lending rate and the late liquidity window. The Central Bank, which does not make a change in the unused 1-week repo interest rate, may in practice make adjustments in the upcoming meetings according to the funding conditions formed in the current interest bands. In order to protect the dynamics of economic activity during the pandemic period, a direct increase in interest rates is not taken into account, where we see that the interest rate prevailing in the market directly affects the bank and money market interest rates. This situation is reflected in bank and deposit rates, and the speed of lending of banks is also affected by the loosened criteria, especially the asset ratio. We expect loans to slow down due to the increasing costs and the priority of banks’ asset and liability management, and costs to continue to increase. The next meeting of the CBRT will take place on September 24.


The Central Bank, which does not change its interest policy, continues to use required reserves and withdraw liquidity from the market. According to the CBRT statement; Required reserves for TRY, foreign currency and precious metals were increased for banks meeting real loan growth criteria. The CBRT increases the RRRs for all maturities by 700 basis points for precious metal deposit accounts and 200 basis points for FX liabilities. In addition, the Central Bank increases the rates by 200 basis points for TRY deposit liabilities up to 6 months and other liabilities up to 1 year; the rate was increased by 150 basis points for liabilities up to 3 years. The decision is expected to withdraw 17 billion TRY and 8.5 billion USD equivalent gold and foreign currency from the market.


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