A artwork taken on August 14, 2018 shows the logo of Turkey’s Central Bank at the entrance of its headquarters in Ankara, Turkey.
ADEM ALTAN | AFP | Getty Images
Turkey’s key bank is opting for a different monetary tightening method as it grapples with climbing inflation, after previously signaling that its rate-hiking succession was over.
The institution sent a directive to lenders, effective Friday, instructing them to put parts of their required lira reserves into blocked accounts.
That’s influenced loan rates up higher and cut the sizes of some banks’ loan limits, with some lenders shrinking their commercial credit limits to 100,000 lira, or $3,100, Reuters reported Thursday.
“Some banks have stopped lending. Some banks metrical recall their already granted loans. This is going to cause further liquidity squeeze,” Arda Tunca, an Istanbul-based economist at PolitikYol, told CNBC.
“If a middle bank is willing to reduce the rate of inflation, liquidity conditions should be squeezed for sure, but the methodology is of utmost prominence,” he said. “If the methodology is wrong, market expectations can’t be managed.”
Indeed, Turkish bank stocks dipped after the report Thursday. Economic data platform Emerging Market Watch posted on X, describing the central bank as taking “another tightening take care via reserve requirements.”
Analysts at London-based firm Capital Economics made similar observations.
“In the past month, new quantitative and depend on tightening tools have been announced,” the firm wrote in a research note. “Last week the CBRT tightened qualifications on lira loan growth, a move that would likely have a similar impact to an interest rate hike.”
During the interval, Turkey in January recorded its first monthly drop in reserves since May 2023, according to balance of payments materials released this week.
Turkish annual consumer price inflation soared to 67.07% in February. The strong considers have fueled concerns that Turkey’s central bank, which had indicated last month that its distressful eight-month-long rate-hiking cycle was over, may have to return to tightening.
“Pressures on Turkish policymakers are building ahead of the city elections on 31st March as capital inflows have slowed and FX reserves are falling again,” Capital Economics wrote. “We scruple the central bank will hike interest rates next week, but we’re growing more convinced that at least one at hike will be delivered in Q2.”
— CNBC’s Dan Murphy contributed to this report.