Turkey’s central bank adds to emergency measures
New measures amount to ‘Turkish QE’, says an analyst
Ankara — Turkey’s central bank on Tuesday added to its emergency programme to help contain the economic fallout from the coronavirus outbreak with new measures to ease lenders’ access to credit and support liquidity in the government bond market.
Policymakers said they could make the bulk of planned purchases of government-issued bonds in a “front-loaded manner” and the programme’s “limits may be revised depending on market conditions”.
The latest step, unveiled two weeks after the central bank’s first round of emergency measures, amount to “Turkish QE”, or quantitative easing, said Timothy Ash, a strategist at Bluebay Asset Management in London.
“They were always going to do this, given their unorthodox bent,” he said.
The central bank has already stepped up its government bond purchases at a dramatic clip, propping up a market reeling from unabated capital flight and the prospect of increased borrowing needs. Over the past five bond-buyback auctions, it snapped up 1.56-billion liras ($240m) of local-currency debt from the secondary market, the fastest pace in a decade and more than double the average in 2020.
The central bank’s current government bond holdings can reach 5% of its balance sheet, according to a policy statement in December.
Foreign investors pulled a net $742m out of Turkey’s local-currency bond market over five days through March 20. That is the seventh straight week of outflows, taking the exodus over the past year to $6.4bn.
Against this backdrop, the government announced a 50% projected increase in domestic borrowing during the next two months, according to the latest plan published by the Treasury.
The yield on 10-year government bonds has jumped more than 130 basis points in 2020. The lira is down 9.4% against the dollar so far in 2020.
President Recep Tayyip Erdogan’s government is rushing assistance at a time hundreds of thousands of businesses remain shut down because of the outbreak. The number of fatalities from the pandemic reached 168 on Monday as the number of infected people climbed to almost 11,000.
A gauge of confidence among Turkish manufacturers fell in March by the most since the 2008 global financial crisis.
While the central bank purchases are part of a beefed-up programme designed to manage the banking system’s liquidity, its scale suggests policymakers are using their balance sheet to soften the blow of accelerating capital flight, while absorbing any pressure the market may come under if the government is forced to scale up its borrowing.
Earlier in March, Erdogan unveiled a 100-billion lira plan to help businesses ride out the economic storm caused by the coronavirus pandemic. Authorities also doubled the allotment for the Credit Guarantee Fund, through which companies access borrowing with the government acting as a guarantor.
Turkey’s economy relies heavily on foreign inflows to finance growth and has more than $170bn of external debt coming due over the next 12 months. Foreign investors now hold less than 10% of the local-currency debt stock in Turkey, an all-time low.
As part of its measures announced on Tuesday, the central bank also pledged to boost the amount of cheap cash it offers to eligible commercial lenders that extend credit to the non-financial sector.
Companies exporting goods and services will have access to a new batch of lira-denominated credit under new limits set for the so-called “rediscount loans”, according to a statement.
It could also accept banks’ asset and mortgage-backed securities as collateral, another step that would allow commercial lenders some flexibility in their liquidity management.