The most recent issue of the Eastern Europe
Interest Rate Bulletin, completed on 17 January 2014 and published here
(see preceding
article), pointed out that pressure was building on the Central Bank of the
Republic of Turkey (Türkiye Cumhuriyet Merkez Bankası - TCMB) to
increase its interest rates. Barely ten
days later, the central bank did just that.
On the heels of a 21 January meeting of the central
bank’s Monetary Policy Committee (Para Politikası Kurulu) that had
decided to leave all policy interest rates unchanged, exactly one week later
the same committee held a meeting at which it voted to raise most of its rates
drastically. The text of the committee’s
decision was published on the morning of 29 January. The official English translation of the text reads
as follows:
DECISION OF THE MONETARY POLICY
COMMITTEE
The Monetary Policy Committee (the
Committee) has decided to adjust the short term interest rates as follows:
a) Overnight Interest Rates:
Marginal Funding Rate is increased from 7.75 percent to 12 percent, borrowing
rate from 3.5 percent to 8 percent, and the interest rate on borrowing
facilities provided for primary dealers via repo transactions from 6.75 to 11.5
percent.
b) One-week repo rate is increased
from 4.5 percent to 10 percent.
c) Late Liquidity Window Interest
Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate is kept at 0 percent,
lending rate is increased from 10.25 percent to 15 percent.
Recent domestic and
external developments are having an adverse impact on risk perceptions, leading
to a significant depreciation in the Turkish lira and a pronounced increase in
the risk premium. The Central Bank will implement necessary measures at its
disposal to contain the negative impact of these developments on inflation and
macroeconomic stability. In this respect, the Committee decided to implement a
strong monetary tightening and to simplify the operational framework.
Accordingly, (i) one-week repo rate is increased from 4.5 percent to 10
percent; (ii) the Central Bank liquidity will be provided primarily from
one-week repo rate instead of the marginal funding rate in the forthcoming
period.
Tight monetary policy
stance will be sustained until there is a significant improvement in the
inflation outlook. Under this policy stance, inflation is expected to reach the
5 percent target by mid-2015.
It should be emphasized
that any new data or information may lead the Committee to revise its stance.
The summary of the
Monetary Policy Committee Meeting will be released within five working days.
On the afternoon of 30 January 2014 the
Central Bank published the promised summary, which explained in somewhat more
detail the reasoning behind the important decision on interest rates. The official English translation of the
summary reads as follows:
SUMMARY OF THE MONETARY POLICY
COMMITTEE MEETING
Recent Developments
1. Recently, uncertainties in the
domestic and foreign markets have increased substantially. As a consequence,
Turkish lira depreciated significantly and risk indicators displayed a marked
increase. Especially, since the last Monetary Policy Committee (Committee)
meeting held on January 21st, heightened risk perceptions towards emerging
economies have accelerated the depreciation of some emerging market currencies,
leading to a deterioration in their inflation outlook.
2. Exchange rate
movements in Turkey driven by these
developments have increased the risk of inflation hovering significantly above
the target for an extended period. Besides rapid exchange rate depreciation,
recent tax adjustments and adverse developments in food inflation were other
factors contributing to the deterioration in the inflation outlook.
Monetary Policy and
Risks
3. The Central Bank will not tolerate any
deterioration in the price stability. To this end, the Committee assessed that,
in order to prevent a deterioration in the inflation expectation and the
overall pricing behavior, it would be appropriate to deliver a strong and
front-loaded monetary tightening.
4. The Committee stated that tightening monetary
policy under current circumstances will not only contribute to price stability,
but also support the macroeconomic stability through a reduction in the
exchange rate uncertainty and risk perceptions. Moreover, it was indicated that
increasing the predictability of monetary policy would be helpful amid
weakening capital inflows.
5. Accordingly, in order
to preserve price stability, the Committee decided to implement a strong
monetary tightening and to simplify the operational framework. In this respect,
(i) one-week repo rate is increased from 4.5 percent to 10 percent; (ii) the
Central Bank liquidity will be provided primarily from one-week repo rate
instead of the marginal funding rate in the forthcoming period.
6. The Committee judges
that, current policy stance will be enough to anchor inflation expectations.
Under this stance, inflation is expected to reach the 5 percent target by
mid-2015. Although January inflation may exceed the market expectations, tight
policy stance should prevent any deterioration in medium term inflation
expectations. In subsequent months, underlying inflation is expected to trend
downside. The Committee indicated that tight monetary policy stance will be
sustained until there is a significant improvement in the inflation outlook. If
deemed necessary, liquidity policy may be tightened further in order to invert
the slope of the yield curve.
Obviously a change in policy interest rates will not, by
itself, change the interest rates prevailing in the economy. Only liquidity actions (“open-market
operations”) carried by the central bank using the new rates will cause a
change in prevailing market rates. But how
much money has the central bank been throwing into open-market operations in
recent months? A press release published
by the central bank on 17 December 2013 gave the figures:
PRESS RELEASE ON
LIQUIDITY POLICY
Taking into
account the decision taken by the Monetary Policy Committee on the weighted
average cost of CBRT funding and projections in funding needs of the system in
the forthcoming period;
1. The maximum outstanding amount of the
funding provided via one-week repo auctions will be reduced from TL 10 billion
to TL 6 billion.
2.
The total amount of funding facility offered to primary dealer banks within
the framework of open market operations will be reduced from 7 percent to 2
percent of the outstanding Turkish lira denominated Treasury securities
purchased from Treasury auctions, the details of which can be found in the
press release No. 15, dated July 06, 2007. Thus, the total amount of funds
available to primary dealer banks through this facility will be reduced from TL
23,0 billion as of today to approximately TL 6,5 billion.
(At the time of the press release, 1 TL (Turkish lira,
TRY) was equivalent to USD 0.490, or roughly half a dollar.) The sharp reductions in the volume of
open-market operations described in this December 2013 memo came on top of
initial reductions already implemented earlier, described in a June 2013 memo:
PRESS RELEASE ON SHORT TERM ADDITIONAL MONETARY TIGHTENING
Excessive volatility has been
observed in the foreign exchange market due to the international and domestic
developments during the last month. Short term additional monetary tightening
will be implemented in order to minimize the adverse effects of the excessive
volatility on price stability and financial stability.
Additional monetary tightening (AMT)
is mainly implemented via open market operations. Liquidity provided to the
market at the policy rate is reduced temporarily below the lower bound
announced for normal days.
In order to support the additional
monetary tightening, the Central Bank may hold unsterilized intraday foreign
exchange sales auctions or foreign exchange interventions when deemed
necessary.
Additional monetary tightening is
intended to be strong, effective and temporary. The duration of the
implementation may vary depending on the progress of volatility in the foreign
exchange market.
Little noticed amidst all the controversy surrounding
the interest-rate decision of 28 January was a press release quietly published
on 29 January:
PRESS RELEASE
ON ENDING THE ADDITIONAL MONETARY
TIGHTENING POLICY
In line with the
simplification decision taken at the Monetary Policy Committee Meeting of 28 January 2014 , additional monetary
tightening policy announced with CBRT’s Press Release of 11 June 2013 numbered
2013-25 will be ended as of today.
It is evident that the central bank not only intends to force interest rates upward, but that it is willing to commit a considerable amount of money (“liquidity”) to doing so. Indeed, as can be seen from the central bank’s statistics, on 28 January, the day before this memo, the central bank accepted a total of TRY 1.0 billion in repo offers (at an interest rate of 4.50%), while on 29 January, the date of the memo, this figure leaped upwards to TRY 33.0 billion (at 10.00%), the largest daily amount ever recorded in the 17½-year history of the central bank’s repo auctions.
Sources:
Press
release explaining reasoning – Turkish: Sayı: 2014-09: Para
Politikası Kurulu Toplantı Özeti (2014-01-30 14:06:54)
Press
release explaining reasoning– English: No: 2014-08: Summary
of the Monetary Policy Committee Meeting (2014-01-30 13:58:08)
Press release on ending monetary tightening policy –
Turkish: Sayı:
2014 - 08: Ek Parasal Sıkılaştırma Uygulamasına Son Verilmesine İlişkin Basın Duyurusu
(2014-01-29)
Press release on ending monetary tightening policy –
English: No:
2014 - 07: Press Release on Ending the Additional Monetary Tightening Policy
(2014-01-29)
Press
release about interest rate decision – Turkish: Sayı: 2014-07: Para
Politikası Kurulu Kararı (2014-01-28 23:57:50)
Press
release about interest rate decision – English: No: 2014-06: Decision
of the Monetary Policy Committee (2014-01-29 00:02:29)
Press release about liquidity policy – Turkish: Sayı: 2013 - 82:
Likidite Politikasına İlişkin Basın Duyurusu (2013-12-17)
Press release about liquidity policy – English: No: 2013 - 63:
Press Release on Liquidity Policy (2013-12-17)
Press release about monetary tightening policy –
Turkish: Sayı:
2013 - 40: Kısa Süreli Ek Parasal Sıkılaştırma Uygulamasına İlişkin Basın
Duyurusu (2013-06-11)
Press release about monetary tightening policy –
English: No:
2013-25: Press Release on Short Term Additional Monetary Tightening
(2013-06-11)
Statistics on open-market operations – repos: İhale ile Gerçekleştirilen
Repo İşlemleri (all auctions since 1996; updated daily)
In other news, on the afternoon of 30 January 2014 the
country’s third largest bank, Garanti Bank (Türkiye Garanti Bankası A.Ş.),
published audited financial statements for the year 2013, in both consolidated
and unconsolidated forms. The published
statements were compiled in accordance with the reporting standards of Turkey’s
Banking Regulation and Supervision Agency (BRSA – in Turkish Bankacılık
Düzenleme ve Denetleme Kurumu (BDDK)), while statements according to IASB’s
International Financial Reporting Standards (IFRS) have yet to be published by
the bank.
(N.B.: as of 31 December 2013 the official exchange
rate was USD 1 = TRY 2.1324.)
The bank’s unconsolidated, BRSA net profit (kâr
veya zarar) for 2013 totaled TRY 3.006 bln (USD 1.410 bln), down slightly
from the earlier year’s result of TRY 3.077 bln. This result appears even less impressive when
one takes into account that in 2013 inflation in Turkey averaged 7.40%.
The bank’s net profit for the nine months ended 30
September 2013 had been TRY 2.521 bln, so the net profit for 4Q 2013 was
evidently TRY 0.556 bln, down slightly from the net profit of TRY 0.645 bln obtained
in the previous quarter, 3Q 2013. (The
total net profit/loss for all 32 deposit-taking banks in Turkey as of 30 Sept.
2013 had been TRY 18.054 bln.)
Garanti Bank, founded in 1946, as of 30 September 2013
was ranked third among Turkey’s 32 deposit-accepting banks by total assets (toplam
aktifler) on an unconsolidated basis, with total assets of TRY 189.82 bln
(USD 93.21 bln). In retail loans it was
in 1st place, with a market share of 13.4% among deposit banks, while in
commercial loans it ranked in 4th place, with a market share of 9.7%.
As of end-2013, in Turkey the bank had 990 branches
and 18,611 employees. The bank also had
6 branches in the Turkish Republic of North Cyprus (94 employees), 1 branch in
Luxembourg (17 employees), 1 branch in Malta (12 employees), and 1
representative office each in Germany, England, and China. The bank is owned 25.0100% by Banco Bilbao
Vizcaya Argentaria S.A. (Bilbao, Spain) and 20.4123% by Doğuş Holding A.Ş. (İstanbul, Turkey). The bank’s
auditor is DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AŞ, a
member of Deloitte Touche Tohmatsu Limited.
Management signature page for 2013 financial statements
Sources:
Notice of
issuance of financial statements – Turkish: Finansal
Tablo Dipnot Açıklamaları (2014-01-30 17:43:39)
Audited unconsolidated
BRSA financial statements for 31 Dec. 2013 – Turkish: Konsolide
Olmayan Yıllık ve Ara Dönem Mali Tablolar - 2013 (2014-01-30 11:23:53)
Audited
unconsolidated BRSA financial statements for 30 Sept. 2013 – Turkish: Konsolide
Olmayan Yıllık ve Ara Dönem Mali Tablolar - 2013/3Ç (2013-10-23 18:24:42)
Summary of
BRSA financial results of all Turkish banks as of 30 September 2013 in table
form: Banka
Bilgileri (Seçilmiş Tablolar, Konsolide Olmayan(Solo Banka)) - 2013 - Eylül
Inflation in
Turkey in 2013: Enflasyon
Verileri (updated monthly)
Also on 30 January, the board of directors of Şekerbank
(Şekerbank T.A.Ş.), Turkey’s 13th largest bank by total assets (founded
1953), voted to increase the bank’s capital by TRY 125 mln, from TRY 1.000 bln
to TRY 1.125 bln, through the issuance of new shares. At the same meeting the board also authorized
the bank’s management to issue up to TRY 500 mln in new bonds with a maturity
of 5 years.
Sources:
Notice of
capital increase – Turkish: Sermaye
Artırımına İlişkin Yönetim Kurulu Kararı (2014-01-30 18:03:30)
Notice of
bond issuance – Turkish: Borçlanma
Aracı İhracına İlişkin Yönetim Kurulu Kararı (2014-01-30 18:05:30)
