KKM decision and the latest situation.

The bankers and the large depositors I spoke to yesterday morning seemed quite calm to me. The former told me that they would wait until the exact policy is released, while depositors were certain that the policy would change at least a couple of times before it takes its final shape.

 

The talks I made with bank branches helped me reach the following conclusions:

 

– TRY deposit interest rate did not increase.

– While some banks have cut the KKM rate, others have not.

– Exchange rates are prone to show an upward trend, but the government intervenes moderately when it deems it necessary.

– Depositors are expected to leave their money in KKM deposits until the local elections.

 

So, has the new administration of the Central Bank made a wise decision? A question that is hard to answer immediately. I cannot not say that it was very wise because it did not bring the expected momentum. However, it was successful in terms of collecting funds with Required Reserves and introducing secondary measures that could prevent foreign exchange attacks. After all, implementers always set a primary and a secondary objective. That way, even if they fail to achieve the primary objective, or if its realisation will take longer than expected , they are content when the secondary objective is accomplished.

 

The truth of the matter is that it is difficult to get rid of the KKM, a huge burden on the Treasury, that quickly. Because the KKM scheme is not only an alternative to foreign currency deposits, but also a factor that slows down the foreign currency demand of the public. It is equally difficult to calculate the cross elasticity between the regular deposit interest rate and the KKM interest rate. In other words, it is not exactly possible to estimate the level to which TRY interest rate should be increased to in order to incite depositors to leave the KKM scheme. For this reason, bankers chose to act rather prudently and did not attempt anything with an uncertain outcome. Consequently, everything remains intact for now. As for the CBRT, it will collect more funds from the banks. That’s all.

 

I can almost hear you asking, “So, why has all this been done?”. Well, because now our government prefers to take a chance on harmless attempts with uncertain success as opposed to both unsuccessful harmful attempts. I just hope that, one day, we will see victorious and beneficial results.

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