NEWS Finance        12/08/2020

Turkish Central Bank negates open market liquidity limits

The Turkish Central Bank, on August 11th, announced that it had decided to erase liquidity limits offered to primary dealers for open market operations, effective as of August 12th. This measure aims to tighten liquidity by reducing the supply of cheap funding. Last Friday, the bank had cut liquidity limits by half following pressure on the Turkish lira which surpassed TL 7.30 to the US dollar. It is now expected that Turkey’s effective interest rates will surpass the Bank’s policy rate of 8.25% and likely reach the upper corridor level of 9.75%. This action by the Central Bank is part of its back-door strategy to protect the Turkish lira without raising the policy interest rate of 8.25%, a development which would be politically unacceptable given the Turkish President Recep Tayyip Erdoğan’s determination to keep interest rates low no matter what in order to boost growth.


The Turkish banks reacted immediately by raising their Turkish lira time deposit interest rates by some 4 points to around 11%. In light of the official inflation rate in July being 11.76%, the real income from TL time deposits is still negative, being below inflation. The interest rates on 32 day time deposits accounts, the most preferred by customers, rose from between 7% and 8%  to between 10.50% and 11%.


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