Bank­ing watch­dog raises swap, trans­ac­tion lim­its for non­res­i­dents

The Bank­ing Reg­u­la­tion and Su­per­vi­sion Agency (BDDK) raised the lim­its of cur­rency swaps and other de­riv­a­tive trans­ac­tions of lenders, fol­low­ing the cen­tral bank’s sur­prise in­ter­est rate de­ci­sion aimed at sup­port­ing the lira against the dol­lar

Daily Sabah (Turkey) - - Front Page -

IN A MOVE likely to please lo­cal mar­kets, Tur­key’s bank­ing watch­dog early Fri­day raised the lim­its of cur­rency swaps and other de­riv­a­tive trans­ac­tions that lenders ex­e­cute with non­res­i­dents when re­ceiv­ing and pay­ing with Turk­ish liras at the ma­tu­rity date. The move came fol­low­ing the Cen­tral Bank of the Repub­lic of Tur­key’s (CBRT) rais­ing of key pol­icy rates ear­lier Thurs­day. Both steps were aimed at sup­port­ing the Turk­ish lira and main­tain­ing a de­fla­tion process as the bank said that a fast re­cov­ery from the ini­tial coronaviru­s pan­demic shock sent in­fla­tion higher than ex­pected.

UN­DER the Bank­ing Reg­u­la­tion and Su­per­vi­sion Agency (BDDK) move, when banks buy Turk­ish liras, the swap limit of Turk­ish banks has been in­creased from 1% to 10% of their equity.

The limit of banks for sell­ing Turk­ish liras was also in­creased to 2% for trans­ac­tions due in seven days, 5% for those due in 30 days, and 20% for those due within a year.

Com­ment­ing on the move in a client note, En­ver Erkan, an econ­o­mist at Is­tan­bul-based pri­vate in­vest­ment firm Tera Yatırım, said for­eign in­vestors will wel­come the pos­i­tive real in­ter­est rate and eas­ing of Turk­ish lira trans­ac­tions.

“With this nor­mal­iza­tion step, which brings re­lief in terms of de­riv­a­tive trans­ac­tions made by banks with for­eign­ers, a mar­ket-friendly move came from the BDDK af­ter the cen­tral bank’s in­ter­est rate de­ci­sion,” he said, re­fer­ring to Thurs­day’s in­ter­est rate hike from 8.25% to 10.25%.

The BDDK, in its state­ment, em­pha­sized that the de­ci­sions made dur­ing the pe­riod of un­cer­tainty and risk in global mar­kets brought on by the COVID-19 pan­demic were reeval­u­ated within the frame­work of nor­mal­iza­tion steps, and the de­ci­sion fol­lowed this process.

TURK­ISH LIRA GAINS STRENGTH

Fol­low­ing the BDDK move, the U.S. dol­lar-Turk­ish lira ex­change started the last trad­ing day of the week by con­tin­u­ing its de­cline. The ex­change rate,

which eased yes­ter­day af­ter the CBRT’s in­ter­est rate hike, fur­ther, yet slightly, strength­ened with the BDDK’s swap step.

The Turk­ish lira was traded at 7.52 against the dol­lar, 1.3% be­low the pre­vi­ous close as of 10:20 a.m. lo­cal time. In the same min­utes, it was sold at 8.80 against the euro with a de­crease of 1.2% and at 9.63 against the pound ster­ling.

The CBRT move was a rel­a­tively un­ex­pected step that helped boost the Turk­ish cur­rency as it came as the bank’s first hike in two years and fol­low­ing a pe­riod of ag­gres­sive rate cuts. Af­ter hit­ting a se­ries of record lows, the lira traded higher against the dol­lar with the de­ci­sion.

Economists re­ferred to the in­crease of the pol­icy rate as a step in the right di­rec­tion, in­ter­pret­ing it a move that would sup­port the Turk­ish lira as­sets.

Anadolu Agency (AA) fi­nance an­a­lyst and econ­o­mist Haluk Bürüm­cekçi said Thurs­day that the cen­tral bank has ex­panded its room for ma­neu­ver with the in­crease in in­ter­est rates and that the re­ac­tion of the Turk­ish lira will de

ter­mine whether the liquidity mea­sures will loosen or not.

Garanti In­vest­ment chief econ­o­mist Gizem Öz­tok Altın­saç, who re­ferred to the de­ci­sion as a pos­i­tive step, said in a re­port pub­lished in Turk­ish daily Dünya on Thurs­day that the de­ci­sion should be viewed not only as a 200-ba­sis point in­crease in in­ter­est rates but also as a cen­tral bank de­ci­sion that takes the in­fla­tion prob­lem se­ri­ously.

Phoenix Kalen, the emerg­ing mar­kets strat­egy direc­tor at the Paris-based So­ci­ete Gen­erale, told AA that the move had been un­ex­pected by mar­kets.

Al­though this is a step in the right di­rec­tion, he warned that it may not be enough to sus­tain­ably steady or strengthen the Turk­ish lira, adding that real pos­i­tive rates needed to be re­stored, along with the ef­fec­tive fund­ing rate.

Also com­ment­ing on the de­ci­sion, Piotr Matys, a strate­gist at Rabobank, a lender based in the Nether­lands, noted that the cen­tral bank’s Mon­e­tary Pol­icy Com­mit­tee (MPC) meet­ing was the per­fect op­por­tu­nity to raise the bench­mark rate. “The de­ci­sion is an im­por

tant step in the right di­rec­tion as it some­what re­duces risk to in­fla­tion and fi­nan­cial sta­bil­ity,” Matys said.

With the move, the CBRT now has more room to tighten mon­e­tary con­di­tions, ac­cord­ing to Ja­son Tu­vey, a se­nior emerg­ing mar­kets econ­o­mist at Cap­i­tal Eco­nomics in the U.K.

“We ex­pect that the av­er­age cost of cen­tral bank liquidity pro­vi­sion will climb to around 12%,” he said.

Meanwhile, Nigel Rendell, direc­tor for Europe, the Mid­dle East and Africa at New York-based Med­ley Global Ad­vi­sors, said the de­ci­sion was “a big sur­prise for the fi­nan­cial mar­kets and a wel­come boost for the Turk­ish lira.’’

An­a­lysts also drew at­ten­tion to the fact that af­ter the de­ci­sions of both the CBRT and the BDDK, the Turk­ish lira was the de­vel­op­ing cur­rency that gained the most value against the dol­lar. The Turk­ish lira gained 1.3% against the dol­lar, while the South African rand gained 0.7%, the Rus­sian ru­ble gained 0.4% and the In­done­sian ru­pee gained 0.3%.

The busi­ness and fi­nan­cial dis­trict of Levent, home to lead­ing Turk­ish banks’ and com­pa­nies’ head­quar­ters, is seen be­hind a res­i­den­tial neigh­bor­hood in Is­tan­bul, Tur­key, Nov. 30, 2017.

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