Turkish central bank to fund primary dealers of gov’t domestic debt at 23%

Turkish central bank to fund primary dealers of gov’t domestic debt at 23%
Turkish officials are conjuring up all kinds of schemes to buy time for the economy.
By Akin Nazli in Belgrade June 17, 2019

Turkey’s central bank has decided to fund primary dealers of the government’s domestic debt securities via overnight repo transactions at 100bp below its main policy rate of 24%, the national lender said on June 17 in a written announcement.

The liquidity facility within the framework of open market operations is aimed at supporting the primary dealership system in view of its contributions to the deepening of financial markets and the effectiveness of monetary policy, the statement added.

“The limits for the Primary Dealer liquidity facility will be determined taking into account the amount of Government Domestic Debt Securities purchased by Primary Dealer banks through the Treasury auctions, and this facility will have a limited share within the overall Central Bank funding,” the statement also said.

The government has systematically killed off its domestic borrowing market for the sake of controlling interest rates since last November.

Prior to the March 31 local elections, the government also killed foreign borrowing channels for the sake of controlling the Turkish lira (TRY).

Recently, with markets discussing the likelihood of a Turkish default, the government has been inventing new ‘ingenious’ ideas to keep the boat float.

The central bank’s monetary committee policy (MPC) has kept its policy rate at 24% for nine months but the government has announced fiscal easing measures in the meantime.

With the latest liquidity move for the primary dealers, the central bank will indirectly buy government bonds, or it will indirectly print money to finance the government.

The TRY, which has suffered a renewed bout of depreciation lately, was trading at 5.86 levels as of around 17:30 local time on June 17. The Erdogan administration has been anxious to prevent a big slide in the value of the currency ahead of the controversial Istanbul mayoral election revote scheduled for June 23 and seen as something of a referendum on the government’s economic competence and commitment to democracy.