Stating the obvious

THE promise Naci Agbal made as soon as he took the chair of the Central Bank has been fulfilled. ”The current situation and expectations will be reviewed and developments will be followed closely in order to make necessary policy decisions in the light of the data,” the Monetary Policy Committee (MPC) said in the statement on November 9.

In this context, the MPC made two decisions at its meeting last week. First was the decision to increase the one-week repo auction interest rate, which is the policy rate, from 10.25% to 15%. The second was to make all funding at the one-week repo rate, which is the main policy tool.

With this decision, the Central Bank has not actually increased the interest rate much. The market had not been funded through the weekly repo auctions for a long time. Therefore, 10.25% had virtually no significance. The market was funded through a late liquidity window of 14.75% or through traditional auctions, and the average funding cost on November 18 was 14.80%.

In other words, the Central Bank apparently raised the interest rate from 10.25% to 15%, increasing it by 4.75 points, but the real increase was only 0.20 points, considering the 14.80% on November 18th.


In fact, the expectation of the new administration of the Central Bank was to remove the uncertainty so the system will know from which channel funding will flow. This expectation has been met. Now there is no uncertainty. Funding will be done through the weekly repo auction, with an interest rate of 15%.

The market has been experiencing uncertainty on a regular basis in recent months. Will funding be made from the weekly repo, overnight lending channel or from the Late Liquidity Window (LLW)? In fact, the LLW had literally replaced the policy rate in the market. Leaving all this behind is an important achievement, and more importantly, recovering the lost reputation of the Central Bank.


With the change to the weekly repo auction interest rate, other interest rates changed automatically. Although it is not available for now, the Central Bank’s overnight lending rate has increased to 16.50% and the LLW lending rate has increased to 19.50%. This rate will be applied as 15% in the November 20-26 period in order to limit the volatility that may occur in the market. The Central Bank’s overnight borrowing rate rose from 8.75% to 13.50%.

We asked a former economy official to interpret the decision of the Central Bank on interest. The official stated that this regulation in the interest rate would result in a horizontal course for exchange rates for a while, and closing the year in this way is especially important for balance sheets. “With this decision, foreign currency borrowers breathed a sigh of relief but those with TRY debt are in trouble. They will have more difficult days due to rising interest rates,” the official said, pointing out that difficulties lie ahead due to the closure of businesses because of the pandemic and that bankruptcies will become more intense.

Back to the days of crisis in mortgaged home sales

As if the priority was to stimulate housing sales during the pandemic, a mortgage loan was launched with monthly 0.64% interest, one-year payment-free and a15-year maturity. Such a loan, of course, could not be missed. First-hand housing sales with mortgages, which went down to 6,000 units in April and May, climbed suddenly, exceeding 39,000 in July. Advantageous credit is over, housing sales have gone beyond returning to normal and have reached the level of crisis days. In October, only 8,000 first-hand mortgaged homes could be sold. The figure in April and May was 6,000. We see the same trend also in second-hand mortgages. Suppose all of these advantageous loan were used by those who really need housing. Even in this case, the practice is unrealistic. Should resources be used to deplete the housing stock during the pandemic? Moreover, it is obvious that this loan does not go entirely to those who need housing. Many people sold their property to family members or friends on paper and used the loan for other purposes, such as using it instead of commercial credit, foreign currency, and even opening a deposit account…

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