Turkey Country Report Nov22 - November, 2022

November 4, 2022

Turkey cut its policy rate further by 150bp to 10.5%. The central bank’s monetary policy committee (MPC) also said that it has “evaluated taking a similar step in the following meeting and ending the rate cut cycle.”

As a result, the MPC is expected to deliver another 150bp rate cut at its next meeting, scheduled for November 24. The policy rate will decline to 9% and it will very likely stay there.

On September 28, Turkey’s president, Recep Tayyip Erdogan, said during a televised interview that he was intent on the policy rate reaching the single digits by end-2022. Based on Erdogan’s guidance, the market expected a 100bp cut at each of the three MPC meetings that remained at the time he spoke.

Some Erdoganist businessmen, as well as some pundits, lately spoke in favour of slashing the policy rate into the single digits without further ado and ending the constant talk of where rates will go. It seems that the MPC has decided to take the middle path.

Turkey’s policy rate remains idle on the sidelines while the government controls the monetary conditions via macroprudential measures and non-capital controls.

In the latest moves, the central bank said on October 18 that banks were now obliged to keep government papers amounting to 5% of their FX deposits at the central bank. The requirement previously stood at 3% and it is to increase to 12% starting from 2023. Yields on government papers declined again as banks rushed to buy more.

On October 21, banking watchdog BDDK said that if a company subject to independent audit had more than Turkish lira (TRY) 10mn ($538,000) of forex cash assets, and the assets exceeded 5% of the lower of total assets or annual revenues, the company would not be permitted to receive new lira loans.

The move was a tightening of rules brought in in June. The parameters issued four months ago covered firms with TRY15mn of forex assets that exceeded 10% of total assets or annual revenues.

As a result of the government remaining at the bankers’ backs with a stick, commercial loan costs are still declining while loan growth is once more accelerating.

As of October 14, the weighted average commercial loan rate fell below the weighted average deposit rate with maturities up to three months.

Since September 28, the USD/TRY, which was hovering in the 18.10s on September 2, has been testing the 18.60-level.

Lately, global markets have taken another "false spring" prior to a November shake-up. The Erdogan administration managed to ride the August shake-up with only a 50 kurus loss against the USD. November's events are expected to be stronger.

The market expects the Fed to deliver another 75bp rate hike at its next rate-setting meeting, scheduled for November 2.

Thanks to the latest positive mood on the global markets, a limited recovery is visible in the Turkish central bank’s international reserves.

Turkey’s five-year credit default swaps (CDS), meanwhile, remain above the 700-level, while the yield on the Turkish government’s 10-year eurobonds remains above the 10% level.

Akbank (AKBNK) launched the autumn syndicated loan renewals season for peers at record high costs.

Main opposition leader Kemal Kilicdaroglu did not secure any noticeable political gains from his US trip.

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