Bearish Divergence on EUR TRY
The CBRT responded to the recent lira weakening by tightening the liquidity conditions in a significant way,
although more may need to be done to stabilize the markets. The CBRT first made a press announcement
stating that a) liquidity measures introduced to support growth would be phased out; and b) all available
instruments would be used to reduce market volatility (suggesting rate hikes could be on the agenda). The
Bank then halved the amount of cheap funding (offered at 100bp below the policy rate) to primary dealers.
Finally, the Bank did not open the daily 1-week repo auction (with the 8.25% interest rate), forcing banks to
borrow from the more costly ON lending facility (with interest rate 9.75%). If the remaining 1-week repos are
also not rolled over, then the CBRT’s effective funding rate will increase from 7.50% to 9.75% within a
week. Such measures should help to reduce the demand for FX and should slow down the loan growth,
mitigating worries over price and financial stability. However, it remains to be seen if they will be enough to
restore confidence and to stabilize the markets.
although more may need to be done to stabilize the markets. The CBRT first made a press announcement
stating that a) liquidity measures introduced to support growth would be phased out; and b) all available
instruments would be used to reduce market volatility (suggesting rate hikes could be on the agenda). The
Bank then halved the amount of cheap funding (offered at 100bp below the policy rate) to primary dealers.
Finally, the Bank did not open the daily 1-week repo auction (with the 8.25% interest rate), forcing banks to
borrow from the more costly ON lending facility (with interest rate 9.75%). If the remaining 1-week repos are
also not rolled over, then the CBRT’s effective funding rate will increase from 7.50% to 9.75% within a
week. Such measures should help to reduce the demand for FX and should slow down the loan growth,
mitigating worries over price and financial stability. However, it remains to be seen if they will be enough to
restore confidence and to stabilize the markets.
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