Turkish Central Bank signals macro prudential tools targeting funding channels

The rate setting statement did not show major surprises but some tweaks related to the bank’s assessment of the global outlook and evidence of expected macro-prudential measures as the CBT stated last month that a comprehensive set of policies would be announced in December with the publication of the 2023 Monetary and Exchange Rate Report.

For the global outlook, the CBT seemed more vocal about recession concerns in developed economies attributable to geopolitical risks and interest rate hikes. Accordingly, it pointed to ongoing adjustment in financial market expectations about the global central banks’ rate hike cycles. The bank reiterated that effects of high global inflation on inflation expectations and international financial markets are closely monitored.

Regarding macro-prudential measures, the CBT came up with policy guidance last month and signalled further steps to support the effectiveness of the monetary transmission mechanism in the “2023 Monetary and Exchange Rate” document that is due for release in December. Given the CBT’s focus on keeping financial conditions supportive, one expectation is regulatory steps to ease credit conditions. While the government has been working on an additional Credit Guarantee Fund (CGF) package, annualised 13-week averages of weekly growth rates on lending have recently shown some acceleration driven particularly by SME lending and general purpose loans. Another expectation is that given ongoing widening of the spread between the deposit rate and the commercial lira loan rate, these macro-prudential measures could target the ongoing rise in deposit rates. In the December MPC note, the CBT eliminated the sentence that “the spread between policy rate and the loan interest rates driven by the announced macro-prudential measures is closely monitored”, while it added that “the entire policy toolset, particularly funding channels, will be aligned with liraization targets”. So, mentioning funding channels as the target of additional macro-prudential measures still implies that wider spread has remained a concern, though we should not rule out the introduction of new and longer-term funding alternatives, in our view.