Two critical days before 2020…

The first important decision is to be released tonight… The Fed Chair will hold a press conference and then the very next day, we will all be focused on the CBRT decision.

While the Fed decision is still surrounded by mystery, a consensus about the CBRT decision is already forming. According to a survey by Bloomberg HT, people expect Turkish Central Bank to cut rates by around 150 bps. Although normally I find such impositions quite annoying, I do believe they can be useful sometimes in terms of reflecting the opinion and the expectation of the market. It is CBRT’s duty to lead and listen. The important thing here is to know when to lead and when to listen.

Apparently, everyone expects a cut by 150 bps approximately. By the way, I hear people talking about the latest CBRT regulations on required reserves. If you ask me, CBRT is trying to use its instruments in the most effective way possible as it did its best to contribute to GDP growth while making efforts to help financial institutions breathe a sigh of relief. Here’s my interpretation of the most recent regulation:

According to the previous regulation, loans could be increased by 10% to 20%. But, apparently, it was necessary to make small technical adjustments in order to achieve ta desired performance. Thus, a new comparison was introduced along with inflation rate, by way of not every loan, but only through the percentage increase of identified loans. I believe this new policy will help loans offered in accordance with goods and services purchased to get rid of the increases arising out price hikes in the relevant goods and services. In short, “fresh loans” will remain listed for review while loans that are naturally growing in the normal course of life will not be reviewed.

“Government must solve the funding problem…”

As a matter of fact, the United States had introduced a similar policy in 2009, forming committees and setting parameters to investigate whether the funding provided to banks by the Fed were indeed turned into loans or not, not to mention that bank managers have been required by law to take an oath to fulfil this promise. However silly it may seem to us, oath breaking has serious consequences in the United States.

Long story short, the fact that the CBRT has decided to hold a total of 12 meetings next year, and has introduced new instruments to the market shows us that we will be bombarded by a lot of information and sets of new regulations in 2020.While, on the one hand, CBRT will monitor the inflation rates, on the other hand, it will manage the increasing liquidity using the “squeeze and loosen” method.

In the meantime, the Government will need to generate funding somehow. But to achieve this goal, first Turkish economy will have to get better and Turkey must offer a brand new narrative to the world. But I notice that no consensus has yet been reached on what this new narrative will be. It could be enough for now just to keep markets calm at least until 2023, hopefully without facing another snap election.