Monetary policy's Groundhog Day

TURKEY - In Brief 23 Jun 2021 by Murat Ucer

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According to some media reports (e.g., link here and here), the CBRT Governor Sahap Kavcioglu held a meeting at the Banks’ Association with the CEOs of the large and a number of mid-sized banks, with a view to containing the ongoing pressures on the TL.We were not, of course, in the meeting, but we’ve read some news reports and talked to some colleagues after the meeting. It seems like there is hardly much new here. The CBRT seems to be again grappling with the age-old question, and trying to answer it pretty much the same way that it has in the past.Question: Since we can’t hike – in fact, we also like to keep our easing bias -- what can we do contain the TL weakness and fend off dollarization pressures?Answer: We will utter the words “swap lines”, tweak our required reserve policy, deploy some moral suasion-- and pray that these will suffice.Even though we are being inevitably speculative, our understanding is that the highlights of the meeting included the following:The CBRT said it will “take the policy steps needed to protect the ailing currency”.It also said it has been working on arranging new swap lines with 4 new counterparties.There was apparently – among others-- some talk of remunerating required reserves on TL deposits, with a view to enabling banks to pay a higher interest rate on TL deposits, and,The banks, more generally, have been asked to help out as best as they can by curbing F/X demand from clients.So, what does all this mean? Well, not much, we think, because none of the above are new and/or gamechangers. “Moral suasion” has been tried in the extreme during Mr. Albayrak’s term, and never worked. The swap lines under negotiation, assuming some can ...