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Additional FX Conversion Targets Creating Uncertainty; USDTRY Trades Above 20 Again

TURKEY
  • The introduction of an additional target to the lira conversion rate of retail clients has raised uncertainty and panic among banks, Ekonomi report. The sector is currently undertaking risk analysis to decide between giving higher interest to FX-linked lira deposits or buying fixed coupon bonds. As a reminder, the central bank last week imposed additional FX conversion targets for lenders, telling them to shift more hard currency into FX-protected TRY retail accounts. Lenders are required to buy low-yielding government bonds if they fail to achieve an additional 10% conversion target each month.
  • The USD/TRY spot rate briefly traded above the 20 handle for the second day ahead of Sunday’s runoff vote, but has since pared gains and now trades close to flat. The recent moves highlight the increasing pressure on TRY with an expected Erdogan re-election on Sunday and subsequent continuation of ultra-loose monetary policy looking increasingly likely.
  • Treasury and Finance Minister Nureddin Nebati responded to criticism regarding the management of the economy, Hurriyet report. Describing critics as “doomsayers”, Nebati says data on growth, employment, industrial production and budget performance provide the best answers to the criticism.
  • The CBRT rate decision takes focus on Thursday, with most sell-side analysts expecting no change to the 8.5% policy rate.
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