>> Deposit interest rates didn’t rise as desired
DR. ATILIM MURAT
Foreigners’ equity and government debt securities inflow totaled USD 3bn in the last three weeks. It related to the messages in the November Monetary Policy Committee statement. The Central Bank (CBRT) didn’t disappoint the markets with a 250 basis point rate hike. The lira liquidity surplus in the market was on the agenda. The CBRT took the required reserve steps two months ago for it. There is still a liquidity surplus in the market. That’s why deposit interest rates don’t increase as desired. This time, the CBRT will start lira deposit-purchase auctions to withdraw the idle liquidity from the banking system. The CBRT extended the securities requirements for six months for credit growth. The CBRT has emphasized quantitative tightening for two months.
>> Will set off hike in credibility
DR. INANC SOZER
The CBRT took action to withdraw the lira liquidity gradually. Although it may raise loan interest rates, the decision will enable the lira deposits to exceed 40% and set off the hike in credibility, which improves Turkey’s risk premium for a slowdown in domestic demand and the fight against inflation. The CBRT may not raise the policy rate in January with the developments regarding inflation, minimum wage hikes, and tax adjustments. In case of a sharp tax rate and minimum wage hikes, the CB may raise the policy rate by 250 basis points in January.
>> Rate cuts may start in Q4 2024
The rate hike above the upper limit in the CBRT’s inflation report is the measure against shocks such as a sharp minimum wage increase. The bank will start rate cuts in Q4 2024, which will be limited to 500 basis points due to our forecast that an inflation decrease will become evident in Q4 2024. The CB’s steps favor the lira, short and medium-term lira bonds, and medium and long-term Eurobonds.
>> All steps to make lira attractive
The process will finish with a rate hike of 250 basis points in January. In the meantime, residents are likely to be more interested in lira deposits than FX deposits with the support of high lira interest rates. As a result, the decrease in the account in deficit, in the CBRT’s net reserve position, excluding swap transactions, which is essential for credit rating agencies such as S&P and Moody’s, and the hike in idle lira liquidity in the system are expected. Although banks feel free on the lira liquidity side, they don’t have any room to get off this lira as loan constrictions continue. That’s why the CB will hold deposit-purchase auctions. All these steps aim to make the lira attractive in terms of quantity and opportunity cost.