Friday 26 / April / 2024
Ankara: The Turkish lira firmed against the dollar on Monday, with investors citing weekend comments by the central bank governor in which he signalled that Turkey could move soon to simplify its complex monetary policy regime.
Investors who met with Governor Murat Cetinkaya and Deputy Prime Minister Mehmet Simsek on Sunday in Turkey said Cetinkaya had indicated that the central bank might move towards more orthodox policy.
"(Cetinkaya) said it was anticipated that there would be a narrow interest rate corridor and the one-week repo rate will be used again as the main funding instrument," said one banker who declined to be identified.
The two are due to meet with foreign investors in London on Monday and Tuesday, in what is seen as an attempt to assuage market concerns about the direction of policy. The central bank last week hiked its top interest rate by 3 percentage points to 16.5 per cent to shore up the tumbling lira.
Bankers at the Istanbul meeting said Simsek's comments focused on the government's achievements and plans, stressing fiscal discipline, tight monetary policy and the commitment to the market economy, similar to comments he made last week.
At 0741 GMT, the lira stood at 4.6514 against the US dollar, gaining more than 1 per cent from its close on Friday. At current levels it is 18 per cent weaker this year, having touched a record low of 4.9290 last week.
For years the central bank has relied on a complex system of multiple rates to set borrowing costs, which economists say makes monetary policy less predictable. It has been funding through its late liquidity window rate, which it raised to 16.5 per cent last week.
Investors have long said the central bank should use a single rate to set funding. The bank says it has taken steps towards this -- which it refers to as "simplification and normalisation" -- but the process appears to be slow.
"We understand that a move towards simplification and normalisation in monetary policy could come onto the agenda in what could be expressed as 'the days ahead'," said Serhat Gurleyen, research direct at Is Investment.
"We had the impression that the central bank envisages keeping monetary policy sufficiently tight for a long time."
Investors have hammered the lira this year on concerns about President Tayyip Erdogan's grip on monetary policy and broader worries about his growing authoritarianism following a widespread crackdown against opponents.
Erdogan, a self-described "enemy of interest rates", wants to keep borrowing costs low, particularly ahead of looming elections. Investors want to see aggressive rate hikes to rein in double-digit inflation.
Turkey will hold presidential and parliamentary elections on June 24 which will trigger the country's move to an executive presidential system.
Alongside last week's rate hike, the central bank has taken a series of measures to ease forex liquidity.
