We Might Find Ourselves in A Bind If We Don’t Get Some Funds Soon

We Might Find Ourselves in A Bind If We Don’t Get Some Funds Soon

As another week comes to an end, the government has revealed some of its action plans for the year ahead:

– The new economic plan will be released in September.

– Restrictions on loan approvals will be lifted after the announcement of the plan.

– According to International Institutions, the CBRT will raise its policy rate to 20% and leave it there until April.

– Measures to reduce demand will be loosened in autumn. Banks will launch new home loan campaigns.

– In the process, the government will intervene in the forex market from time to time in order to prevent exchange rates from rising further up.

– For all these plans can be put into action, Turkey needs to be removed from the Financial Action Task Force (FATF) ‘grey list’, and then hopefully receive funds.

Frankly, the current state of the reserves will make it even more difficulty for the government to manage this process. And when the central bank starts to buy foreign currency from the market to replenish its reserves, the exchange rates will go up again. This will be just like walking on a double-edged sword.

At a meeting I joined earlier this week, I learnt that the loan policies of private banks vary on a daily basis, therefore, banks use their resources very carefully. Well, they have to be selective considering the fact that they are not allowed to let their loan growth rates exceed 2.5%. And they are also asked to provide loans to non-bank financial institutions from their already limited resources as well, which makes the situation even more unpleasant.

When Vice President Cevdet Yılmaz said “loan providing conditions will relax in a couple of months”, I think he referred to the upcoming funds from abroad. If these funds do not show up, the government will have no other option but to increase the lira supply. In any case, high exchange rates, high inflation and low interest rates will not improve until the elections. So, you best be ready for anything.