The monetary policy committee (MPC) of the Turkish central bank on March 23 held its policy rate at 8.50%, the authority said in a statement (chart).

The central bank and its policy rate are, however, essentially idle on the sidelines. The Erdogan administration conducts monetary policy via macroprudential measures and non-capital controls.

Each day another macroprudential measure or non-capital control, or amendments to already amended measures, are circulated by news services with reference to unnamed sources. Even the treasury departments at Turkey's banks face a real dilemma in keeping up with each announced move.

Take note, nevertheless, that the latest circulated story on such measures, which appeared on March 20, showed the government moving things up another level. According to unnamed sources, the central bank has asked local banks to offer higher USD/Turkish lira (TRY) buying rates to companies that carry an FX surplus.

Although its trajectory has faded out of news coverage, the USD/TRY pair has lately been on another record-breaking spree. The latest record, set on March 15, is TRY 19.3130.

Since the beginning of March, the pair has shot through the barriers in the 18.80s. It is now mainly trading in the 19s, with some spikes.

The spot rate on the interbank market is seen around the 19s during working hours. The central bank accordingly enamoured of those companies that carry a short FX position on their balance sheet and buy USD at the spot rate.

However, the authority wants local banks to ask for 19.20 from companies that are long in FX. The 19.20 rate was previously set for USD retail buyers.

When it comes to multiple different exchange rates for different buyers, Argentina is king. Turkey is picking up on this indicator, but it is still a long way from threatening Argentina’s pre-eminence.

Turkey’s central bank has also asked companies that buy more than $2.5mn in a single transaction to notify it.

Additionally, the authority has asked banks to introduce a 5% commission for money transfers abroad. Bankers ask for documents and bills even in connection with $500 transfers abroad.

Local business daily Ekonomi has described the current currency regime in Turkey as a “controlled exchange rate.”

Note that these are not capital controls.

The political stage, meanwhile, remains hot. Main opposition Republican People’s Party (CHP) chair Kemal Kilicdaroglu has been made the opposition bloc’s joint candidate for the May 14 elections. The pro-Kurdish Peoples' Democratic Party (HDP) will support him.

Turkey’s president, Recep Tayyip Erdogan, is heading for a guaranteed dramatic disaster at the polls. In the first-round voting for the presidency he would attract a maximum vote share in the 30%s, while Kilicdaroglu would be in the 60%s.

His silence in recent days supports the expectation that he or, officially, the Supreme Election Board (YSK), will delay the elections. The election process was launched on March 10 and the procedural wheels continue to turn.

Another scenario would see shocking events that roil the Turkish environment. There could be a major armed clash, perhaps even a war, or terror attacks. In such a context, amid the unfair conduct of Turkey's elections, the stage would be set for the declaration of an election victory that would be beyond verification.

There are millions upon millions in Turkey that would see it as a gift from god if Erdogan were to simply flee abroad.

On March 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that official consumer price index (CPI) inflation was recorded at 55% y/y in February.

In January, the central bank left its expectation for end-2023 official inflation unchanged at 22% (upper boundary: 27%).

The guidance was based on the assumption that the lira would not experience another crash. As of February 23, the USD/TRY pair was weaker by 1% at TRY 19.04 from 18.80 on January 26.

If the USD/TRY remains stable, Turkey’s official inflation figure is set to decline to the 30-40%s across 2023.

Amid the booming lira supply and hard currency outflows via record trade deficits, the lira does not enter into a nosedive only thanks to the sticks held to the exposed backs of bankers by officials who demand the blocking and gumming up of domestic FX demand. Also supportive are unidentified inflows and support from “friendly countries”.

Another lira tragedy would come as no surprise. It could happen at any time.

The global markets have lately entered into a time of stress over bank failures in the US. However, the turbulence-free mood on the markets remains in place and the central banks, led by the Fed, have not yet stepped back from monetary tightening. The spectre of high inflation is still there and the banking tension is not good news for the monetary authorities.

Turkey’s five-year credit default swaps (CDS) remain below the 600-level, while the yield on the Turkish government’s 10-year eurobonds fell below the 9%-level.