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SHORT-STERLING OPTIONS

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UK T-BILL AUCTION RESULTS

DMO sells GBP2bln 1/3/6-month UKTBs

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Expiries for Sep24 NY cut 1000ET (Source DTCC)

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  • Analysts sound somewhat concerned this morning about the signal from the CBRT to boost its RRR ahead of next week's CBRT meeting - belying concerns of potential currency difficulties ahead
  • The measure appears to be a technical decision from the CBRT to help prevent FX withdrawals expected to come after the removal of ROM (reserve options mechanism) mechanism in October - protecting FX reserves which have rebounded in recent months due to improving export dynamics and FX swap deals.
  • The upper limit of the ROM was decreased from 20% to 10% in July and the CBRT says the revisions are aimed at improving inflation dynamics the effectiveness of monetary policy - which is largely tapped out on the tightening front outside of unconventional measures.
  • Lira-denominated required reserves will rise by 13.9 billion lira ($1.65 billion), and that of forex and gold will rise by the equivalent of $3.4 billion as of Oct. 1, when the move takes effect, the bank said.
  • To boost local currency deposits the CBRT said it would offer higher remuneration rates on TRY required reserves. Some deposits converted to TRY will also be exempt from reserve requirement liabilities.
  • Local economists noted that success on this front is not up to the banks, but the depositors - making CBRT credibility and reasserting TRY stability and investor confidence more important. FX and precious metals held by locals reached a record high above $236bn in Jan-21 but have eased slightly since then.
  • Analysts remain concerned regarding premature easing in the coming months following the abrupt switch to core CPI to sidestep the uncomfortable promise to hike rates if headline CPI moved above the key rates at 19.00%.
  • Preparations to guard TRY deposits and ahead of the upcoming meeting in anticipation of possible TRY weakness and return to dollarisation also do little to inspire confidence in the CBRT's future policy path from here