By Ebru Tuncay and Nevzat Devranoglu
ANKARA (Reuters) – Turkey’s central bank is expected to take steps soon to bring lending costs closer to its newly cut policy rate, especially for some corporate loans, three bankers told Reuters, after the bank said spreads between the two rates had widened.
The central bank unexpectedly cut its policy rate by 100 basis points to 13% on Thursday, despite 80% inflation. It cited the widening gap between its policy rate and rising lending rates as having reduced the effectiveness of its monetary policy.
The central bank “decided to further strengthen the macroprudential policy set with tools supporting the effectiveness of the monetary transmission mechanism,” its policy committee said.
The three bankers, who requested anonymity, told Reuters that the central bank gave a clear message and they expect it to take steps that aim to trim lending rates.
They also expect authorities to continue or even strengthen their current policy of encouraging selective loans, especially to exporters – a policy which has drawn criticism from the private sector for sowing confusion.
The new moves could be similar to existing practices such as asking that treasury bonds be held as collateral required for banks that issue loans with interest rates higher than a certain level, the bankers told Reuters.
One of the bankers highlighted three potential steps, including an effective ceiling on loan rates.
“If, for example, a bank is lending at a rate higher than 22%, the central bank could mandate it to hold a long-term treasury bond for a portion of the loan,” the banker said.
WIDE RATES GAP
President Tayyip Erdogan’s economic programme seeks to tame inflation not by orthodox rate hikes, but rather by rules and incentives meant to flip chronic current account deficits to surpluses.
Exporters thus have access to cheaper loans with rates close to the 13% policy rate. Similar corporate loans have rates near 40%, while consumers borrow at around 50%.
The central bank currently imposes reserve requirements on banks for loans, and mandates them to hold bonds for foreign exchange deposits.
The bankers expect the new steps to include lenders holding bonds as collateral, in line with previous practices, and for the resources not used for loans to go to the Treasury.
The central bank has said it is closely monitoring the pace of loan growth and that it will strengthen the transmission mechanism through loan, collateral and liquidity policy steps – though it has not outlined them.
The rate cut came as surprise to markets largely due to the already deeply negative real rate, rising inflation and sharp depreciation in the Turkish lira, which sold off again after the move.
The central bank said it eased policy because economic growth had slowed and momentum in industrial production and employment must be maintained.
(Writing by Ali Kucukgocmen; Editing by Jonathan Spicer and Leslie Adler)