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JPM See Further Measures Possible to Strengthen Transmission

TURKEY
  • JPMorgan write that the unwinding of the KKM scheme in Turkey is necessary to allow for monetary policy to work and shift to a somewhat more conventional monetary regime.
  • On further steps ahead, they see a strong possibility that the CBRT will lower or remove the minimum deposit rate requirement for dollar-KKM holders to accelerate KKM unwinds.
  • In addition, the fiscal authorities may help the CBRT via removing tax incentives for corporates in KKMs. The FinMin may lift these tax exemptions to discourage corporates from holding KKMs next year.
  • If these measures are successful in eliminating KKMs, the transmission from the policy rate to the deposit and lending rates, and hence to economic activity and inflation will be significantly strengthened.

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