New Governor of the Central Bank Mrs. Hafize Gaye Erkan, loosened the securities rule as the first step to simplify policies to increase Turkish lira savings. According to the decision published in the Official Gazette on Sunday;
-The securities maintenance rate was reduced from 10% to 5% with immediate effect. Within the scope of the “Liraization strategy”, the rate was increased from 3% to 10% twice in the last two years in order to support the conversion of foreign currency deposits into lira.
-According to the regulated rules, if a bank's share of lira deposits is below 57%, it will be required to increase its securities holding ratio by 7 percentage points. The previous threshold was 60%. If the share of lira deposits exceeds 70%, banks will receive a discounted securities holding rate.
-The Central Bank, in its statement right after the publication of the Official Gazette, stated that the regulation on the facilitation of securities was simplified in order to increase the functionality of market mechanisms and strengthen macro financial stability.
Easing came after Treasury and Finance Minister Mr Mehmet Şimşek promised to return to "rational" policies. The former central bank governor, Mr. Şahap Kavcıoğlu lowered interest rates and followed unconventional economic policies. In Erkan's first monetary policy meeting last week, the Central Bank increased the interest rate by 650 basis points to 15% and signaled "gradual tightening". Meeting with the bankers on Friday, Erkan said that for the first time since she took office, the bankers demanded a simplification of the rules while appearing in public for the first time.
Securities rates were lowered and many conditions were eased to encourage banks to "liraize". Even after the Central Bank's last interest rate decision, the tendency to rationalize remains in the foreground. The steps taken over the weekend also show that a gradual transition from the conditions of the last 2 years has begun and that the steps will be taken slowly. While the lira has lost nearly 18% of its value against the dollar this month, the decline continued after Şimşek emphasized his support for the gradual transition in economic policies. The jump in the exchange rate last week had worsened the rate against the banks. As TL depreciates, it seems that a legislative change is needed.
Turkish Lira Falls in June as Policy Changes… Finance Minister pushes for gradual change… Source: Bloomberg, Dinamik Yatırım
The drying up of the demand for bonds from banks will of course increase the interest rate. Regulations regarding the purchase of bonds had put a lot of strain on the banking sector. Before the Central Bank's decision, it was wondered whether there would be an exit from long-term bonds through swap auctions. A sharp exit would naturally cause the banks to write off losses on the balance sheet. Here, too, we see that the securities facility was not abruptly removed, but ratios were slowly lowered, allowing banks to adjust their positions slowly and not triggering a rapid rise in interest rates, a slight relaxation of the rules would give banks room and time to maneuver about their bond portfolios. Therefore, it is a comforting and positive development for the sector.
Based on the impact analyses, we will be 'simplifying' with a gradual approach as we remember from the MPC text. Therefore, more will come to continue the gradual simplification. Turkey's current yield curve is between 13% and 15%, that is, the correlation between short-term and long-term interest rates and the Central Bank's policy rate has increased. As securities rules that lower bond rates are relaxed and additional monetary tightening is expected, we will expect an increase in bond rates. We think that in the next interest rate decision of the central bank, it will increase the interest according to the market conditions formed by the bond rates/yield curve. There will be gradual increases in the interest rate in line with the bands reached in the yield curve.
Kaynak Dinamik Yatırım – Enver Erkan
Hibya Haber Ajansı