Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Turkey unveils latest salvo against soaring inflation

Turkey unveils latest salvo against soaring inflation

Turkey's government launched a series of steps meant to harness its banks and bond markets to cool soaring inflation and stabilise a sliding currency, doubling down on President Tayyip Erdogan's aversion to raising interest rates.

While the Treasury said fighting inflation remained its "top priority", some analysts said the measures - announced late Thursday and in the early hours of Friday - would do little to relieve an economy saddled by high living costs.

Among the steps, the Treasury said it would issue domestic bonds indexed to the revenues of state enterprises to spur 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.

"All of our institutions are acting with the understanding of a joint struggle," the Treasury said.

In response to the coordinated steps, the lira initially rallied then skidded to settle at 17.06 to the dollar, near its lowest since a currency crisis in December. It has shed 23% this year after dropping 44% last year.

Underscoring how risky the emerging market economy has become due largely to Erdogan's unorthodox policies, 5-year credit default swaps rocketed to a record 830 basis points while international bonds came under pressure.

Taken together, the steps aim to boost individual Turks' lira confidence and holdings while also cooling some forms of credit growth, which helped push inflation to a 24-year high above 73% last month.

The inflationary spiral was precipitated by a series of central bank interest rate cuts carried out late last year under pressure from Erdogan, who says the monetary stimulus is needed to boost exports and investments ahead of elections in mid-2023.

FEWER FAMILY VISITS


Analysts were sceptical how much the latest steps could move the needle given they skirted the need to raise rates and could prove costly for the state.

"There isn't any policy change available to take inflation under control," said Arda Tunca, Istanbul-based economist and columnist at PolitikYol. "All these schemes cause the Treasury to shoulder the burden of yields to be paid to investors."

Bankers said time deposit yields had been rising in recent weeks, and the latest steps could raise banks' costs and further lift loan rates.

Earlier this week, sources told Reuters the government was considering pushing a supplementary budget through parliament before a recess next month to cover possible summer payments.

The lira crisis has driven up import prices, a trend exacerbated by Russia's war in Ukraine that hiked Turkey's energy and food import bills.

"So far I have not seen anything that would help stabilise the lira," said Per Hammarlund, chief EM strategist at SEB. "Erdogan seems to be stuck on those low interest rates."

The economic turmoil has hit Erdogan's approval ratings ahead of the presidential and parliamentary elections.

Turks like Onder Ozturk, 42, a barber in Istanbul, have borne the brunt of soaring prices.

"We never go out to eat anymore," said Ozturk, who has cut discretionary spending by half, including visits to his home town. "We've limited our spending to clothes and personal needs."

STEPS TAKEN


The Treasury said free market rules would not be compromised by the steps meant to boost the lira's appeal.

Commenting on the move to issue revenue-index lira bonds this month, Spinn Consulting's Ozlem Derici Sengul noted that such debt was issued in 2009.

"Not corporates but only real persons are targeted this time, but...it is difficult to attract deposit holders who do not have equity investing experience," she said.

The central bank said lenders must hold between 3% and 10% of fixed-rate bonds for foreign currency deposit accounts. A senior banker told Reuters this would lift demand for fixed-rate bonds and effectively lower the 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.

The capital markets board reduced fees to encourage foreign funding for Turkish public offerings, and to nudge companies to obtain funds by issuing capital market instruments abroad.

Newsletter

Related Articles

0:00
0:00
Close
Unelected PM of the UK holds an emergency meeting because a candidate got voted in… which he says is a threat to democracy…
Farmers break through police barriers in Brussels.
Ukraine Arrests Father-Son Duo In Lockbit Cybercrime Bust
US Offers $15 Million For Info On Leaders Of Cybercrime Group Lockbit
Apple warns against drying iPhones with rice
Alexei Navalny: UK sanctions Russian prison chiefs after activist's death
German economy is in 'troubled waters' - ministry
In a recent High Court hearing, the U.S. argued that Julian Assange endangered lives by releasing classified information.
Tucker Carlson says Boris Johnson wants "a million dollars, in Bitcoin or cash, from Tucker Carlson to talk about Ukraine.
Russia is rebuilding capacity to destabilize European countries, new UK report warns
EU Commission wants anti-drone defenses at Brussels HQ
Von der Leyen’s 2nd-term pitch: More military might, less climate talk
EU Investigates TikTok for Child Safety Concerns
EU Launches Probe Into TikTok Over Child Protection Under Digital Content Law
EU and UK Announce Joint Effort on Migration
Ministers Confirm Proposal to Prohibit Mobile Phone Usage in English Schools
Avdiivka - Symbol Of Ukrainian Resistance Now In Control Of Russian Troops
"Historic Step": Zelensky Signs Security Pact With Germany
"Historic Step": Zelensky Signs Security Pact With Germany
Russian opposition leader Alexey Navalny has died at the Arctic prison colony
Tucker Carlson grocery shopping in Russia. This is so interesting.
France and Germany Struggle to Align on European Defense Strategy
‘A lot higher than we expected’: Russian arms production worries Europe’s war planners
Greece Legalizes Same-Sex Marriage and Adoption Rights
Russia "Very Close" To Creating Cancer Vaccines, Says Vladimir Putin
Hungarian Foreign Minister: Europeans will lose Europe, the Union's policy must change drastically
Microsoft says it caught hackers from China, Russia and Iran using its AI tools
US Rejects Putin's Ceasefire Offer in Ukraine
The Dangers of Wildfire Smoke and Self-Protection Strategies
A Londoner has been arrested for expressing his Christian beliefs.
Chinese Women Favor AI Boyfriends Over Humans
Greece must address role in migrant vessel disaster that killed 600: Amnesty
Google pledges 25 million euros to boost AI skills in Europe
Hungarian President Katalin Novák Steps Down Amid Pardon Controversy
Activist crashes Hillary Clinton's speech, calls her a 'war criminal.'
In El Salvador, the 'Trump of Latin America' stuns the world with a speech slamming woke policing after winning a landslide election
Trudeau reacts to Putin's mention of Canadian Parliament applauding a former Ukrainian Nazi in his interview with Tucker Carlson.
The Spanish police blocked the farmers protest. So the farmers went out and moved the police car out of the way.
Volodymyr Zelenskiy fires top Ukraine army commander
Tucker Carlson's interview with Vladimir Putin raises EU concerns
Finnish Airline, Finnair, is voluntarily weighing passengers to better estimate flight cargo weight
Russia's Economy Expands by 3.6% Due to Increased Military Spending
Ukraine MPs Vote To Permit Use Of Dead Soldiers' Sperm
German Princess Becomes First Aristocrat To Pose Naked On Playboy Cover
UK’s King Charles III diagnosed with cancer
EU's Ursula von der Leyen Confronts Farmer Protests Amid Land Policy Debates
Distinguishing Between Harmful AI Media and Positive AI-Generated Content: A Crucial Challenge for the EU
Tucker Carlson explains why he interviewed Putin
Dutch farmers are still protesting in the Netherlands against the government, following the World Economic Forum's call for 'owning nothing.'
Hungarian Prime Minister Viktor Orbán stands up for European farmers and says, 'Brussels is suffocating European farmers.
×