Turkey announces steps to shore up economy, prioritising inflation fight -Breaking
Daren Butler and Ezgi Erkoyun
ISTANBUL (Reuters] -Turkey’s Treasury declared Friday that the fight against inflation is its main priority. This was after new measures were taken by Turkish authorities to stabilize an economy hit hard by high prices and a declining lira. However, analysts expect little to no effect from these latest steps.
Treasury announced it will issue domestic bonds that are indexed to state enterprise revenues to promote lira assets savings. The central bank increased the requirement ratio for lira cash loans to 20%, from 10%. A maturity limit was also set by the banking watchdog.
“Inflation is still a priority. “In this fight the importance of coordination among institutions is evident and all our institutions act with the understanding that a joint struggle.” A Treasury statement stated.
These steps led to volatile trading in the lira. Before the announcements were made, it traded as high as 16.8 USD before falling to 17.3 USD after the announcements. At 0800 GMT, the Treasury’s last statement had caused it to trade at 17.21.
After last year’s 44% plunge, the lira fell 23% this year. This was precipitated in part by unorthodox central bank rate reductions that President Tayyip Erdogan forced. Despite rising inflation.
Inflation is being exacerbated by the lira crisis, particularly this year when Russia’s conflict in Ukraine has increased energy and food costs.
Analysts are skeptical about how the latest steps will move the needle. They believe the measures have failed to deal with the fundamental issue of high inflation and low rates of interest.
“As far as I see, there isn’t any policy change available to take inflation under control,” said Arda Tunca, Istanbul-based economist and columnist at PolitikYol.
Sources informed Reuters that sources believed the government would push a supplementary Budget through Parliament before a recess next year to fund possible summer payments.
“I always wonder what kind of rabbit they will pull out of the hat next time – so far I have not seen anything that would help stabilise the lira,” said Per Hammarlund, chief EM strategist at SEB.
Turkey’s market and economic problems are causing Erdogan to face difficult elections between mid-2023 and 2024. Erdogan has seen his approval ratings plummet due to rocketing inflation which reached 73% in May.
Onder Ozturk (42), a Turk barber in Istanbul has borne the brunt from the soaring costs.
Ozturk said that he has reduced discretionary spending to half of his previous level, which includes visits to his hometown. “We’ve limited our spending to clothes and personal needs.”
Ozlem Derici Sengul of Spinn Consulting commented this month on the decision to issue revenue index lira bond.
According to her, “Not corporations are targeted but only real individuals at the moment.”
According to the Treasury, the Treasury stated that the Treasury will not allow the use of the Lira or practices to enhance its appeal without violating free market rules.
Separately, foreign currency deposit account banks will need to keep between 3% – 10% fixed-rate bond funds. The central bank made the announcement in a statement that Reuters was told by a senior banker. It is a decision intended to increase demand for fixed rates bonds and lower treasury’s borrowing costs.
In other moves, the banking watchdog reduced the maximum maturity for consumer loans over 100,000 lira ($5,814) to 12 months from 24, and plans to ease restrictions imposed on foreigner investors’ access to the lira via the swap facility.
According to the capital markets board, it has reduced fees to promote foreign financing for Turkish public offerings and encourage international capital market instruments to be issued abroad.
The latest announcements showed that local bond yields fell, with the yield of the benchmark 10-year bond falling to slightly over 21%. It was 25.72% at the end of Thursday. Borsa Istanbul’s main banking index climbed 4%.