Turkey announces steps to shore up economy, prioritising inflation fight
Shafaq News/ Turkey's Treasury said on Friday the fight against inflation remained the top priority in its macroeconomic policy after it and other state institutions announced measures to support an economy beleaguered by surging prices and a sliding lira.
The Treasury said it would issue domestic bonds indexed to the revenues of state enterprises to encourage lira asset savings, the central bank raised the required reserves ratio for lira commercial cash loans to 20% from 10%, and the banking watchdog tweaked a maturity limit for consumer loans.
"The fight against inflation remains top priority. In this struggle the importance of coordination between institutions is clear and all our institutions are acting with the understanding of a joint struggle," a Treasury statement said.
The steps prompted volatile trade in the lira . It firmed as far as 16.8 to the U.S. dollar ahead of the announcements before sliding back to 17.3 after they were unveiled. It traded at 17.21 at 0800 GMT after the Treasury's latest statement.
The lira has slid 23% this year in addition to last year's 44% tumble in value, which was precipitated by a series of unorthodox central bank rate cuts carried out under pressure from President Tayyip Erdogan despite surging inflation.
The lira crisis has in turn aggravated inflation, especially this year as the war in Ukraine has driven up energy prices.
The economic and market headwinds come as Erdogan faces tough elections by mid-2023, with his approval ratings already hit by rocketing inflation, which hit 73.5% in May.
The latest announcements triggered a slide in bond yields, with the yield on the 10-year benchmark bond slipping below 23% from a last trade of 25.72% on Thursday. Borsa Istanbul's main banking index climbed 4%.
Commenting on the move to issue revenue-index lira bonds this month, Spinn Consulting's Ozlem Derici Sengul noted that such bonds were issued in 2009.
"Not corporates but only real persons are targeted this time, but according to my humble view it is difficult to attract deposit holders who do not have equity investing experience," she said.
FREE MARKET RULES
The Treasury said the use of the lira and practices to increase its appeal will continue without compromising free market rules.
Separately, the central bank said banks will maintain additional lira long-term fixed-rate securities for foreign currency deposits/participation funds as a complementary step to increasing the weight of lira fixed-rate securities in the collateral pool that takes effect on June 24.
"The aim of this regulation is to increase the effectiveness of the monetary policy within the scope of the liraization strategy," its statement said.
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.
Also, the capital markets board said it had reduced its fees in order to encourage foreign funding for public offerings held in Turkey, and to encourage companies to obtain funds by issuing capital market instruments abroad.
Source: Reuters
