Well, Turkey is becoming increasingly desperate to maintain financial stability ahead of the Istanbul rerun and on the heels of another Moody’s downgrade.
On Monday, CBT rolled out a new liquidity facility which lenders can tap at 100bp below the benchmark rate in proportion to the amount of government debt primary dealers snapped up at Treasury auctions. That’s obviously aimed at ensuring demand doesn’t dry up.
Turkish stocks fell into a bear late last month and this latest effort to support government borrowing follows reports that banks are being bullied into effectively underwriting fiscal largesse at Erdogan’s urging (i.e., forced to buy more bonds at auction than they need in their capacity as market makers). Erdogan also compelled pension funds to hold a minimum amount of Turkish stocks and bonds.
Local equities have bounced off the lows but, notably, some $22.2 million was pulled from the Turkey ETF from Monday-Thursday last week, as the fund dropped after rising for three straight weeks.
Turkey is still beset with worries, not the least of which is a looming showdown with Washington over the S-400 drama. Late last week, Foreign Minister Mevlut Cavusoglu said Ankara would retaliate in the face of US sanctions tied to Erdogan’s purchase of the Russian missile systems, which the US has insisted is a deal breaker on participation in the F-35 program.
Last week, CBT kept rates on hold, which was a relief considering there was an argument for easing (not by any rational standard, of course, but considering the Fed is on the verge of cutting rates and the lira had temporarily stopped plunging, Erdogan might have insisted on looser policy ahead of the Istanbul vote). That said, the central bank dropped its tightening bias.
On Sunday evening, Imamoglu and Yildirim squared off in the first televised election debate in 17 years. Obviously, the disputed results of the initial vote played prominently ahead of the rerun on June 23, which you’ve got to think Erdogan will somehow rig for Yildirim after successfully having Imamoglu’s initial victory nullified.
“[The new vote] is a fight for democracy against those who violated our rights and the rights of 16 million people”, Imamoglu said Sunday.
Expect Turkey to be back on the front burner come next week.