CBRT Monetary Policy and Liraization Strategy: Higher TL deposit target in 2023

While the CBRT aims to increase the share of TL in all deposits in commercial banks in the ‘Money and Liraization Policy’ 2023 text, it states that it will decrease the swap share in TL funding it provides to banks.

-The central bank aims to increase the share of TL deposits to 60% in the first six months of 2023. (According to the CBRT decision, 3% commission is applied to required reserves at levels between 50% and 60%, and the commission rate above 60% is zeroed. In this context, the share of TL in total deposits in the banking sector is 53.1% according to the BRSA data on December 23, due to the latest developments. )

-The Bank will increase funding through Open Market Operations while managing TL liquidity.

-The Bank’s one-week repo facility will continue to be the main funding tool.

-The central bank maintains its medium-term inflation target of 5%.

-Negotiations will continue for currency swap agreements with central banks of other countries.

-The nominal size of the CBRT OMO portfolio, which was determined as 5% in 2022, was updated to 7% of its total assets in 2023. (According to the last December 27 data of the CBRT, the portfolio size corresponds to 4.7% of the total, the CBRT may purchase more government securities.)

-The contribution to the CBRT’s foreign exchange reserves resulting from the repayments of rediscount credits extended in foreign currency is expected to be 22.3 billion dollars by the end of 2022.

The main policy slogan of the Central Bank is to keep the exchange rate under control in an environment where interest rates do not change or are reduced. Although it is not possible to keep interest rates below inflation in the long run, we can predict that the current conditions will continue until the elections. There is no directive to tighten monetary policy or to remove the existing macroprudential liraization measures. For this reason, it is necessary to divide the year into two as before and after the election.

The exchange rate shock after the rate cuts after September 2021 was brought under control with the currency-protected deposit that was put into effect in December 2021. In the following period, foreign exchange inflows and increasing gross reserves kept the exchange rate stable. Since it becomes difficult to control foreign exchange in unstable expectations, foreign exchange demand should not exceed the real demand (buying goods and services).

We think that the increase in OMO funding and the fact that more funds will be given to banks than currently given (assuming the 9% interest rate will not change) will support credit expansion. We think that factors such as wage increases, early retirement and credit expansion will create strong demand in the first half, keeping monthly inflation rates high and slowing down the decline in inflation. On the other hand, with the help of the base effect, inflation may drop to 40% until the elections.

Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı