Wednesday, October 4

Turkey clarifies to BBVA the operating framework with Garanti

The Central Bank of Turkey left interest rates unchanged at 14 percent, something that was already discounted, but announced a new monetary policy that facilitates the work of BBVA with Guarantee thanks to a more stable frame.

After a 2021 with imposing interest rate cuts that have triggered the country’s inflation and devalued the Turkish lira by 50 percent, also due to the direct intervention of the country’s president, Tayyip Erdogan, 2022 starts with a more clarified scenario.

Now, the turkish monetary authority gives priority to the exchange rate after last year’s strategy with a statement in this regard in its statement on the interest rate decision.

“While monitoring the cumulative impact of recent policy decisions, to establish a foundation for sustainable price stability, the comprehensive review of the political framework is being carried out with the aim of prioritizing the lira Turkish in all the political tools of the Central Bank”, collects the document.

BBVA still has a long way to go with Garanti

“The phrase suggests to the markets that the central bank finally recognizes having a target exchange rate together with regulatory measures”, points out the market analyst for Monex Europe Ima Sammani.

The new policy occurs in the middle of BBVA’s takeover bid for the 50.1 percent that it does not control of its Turkish subsidiary Garantí and would begin to agree with the president of the entity, Carlos Torres Vila, in his personal commitment to Garanti that he already developed when he was CEO.

Despite this, the market considers that there is still a long way to go until optimism about the country is restored: “The path to regaining investor confidence will not be easy, especially because the central bank carried out a strategy of low rates to sustain inflation, which goes against most economic theories,” says Sammani.

The result was the opposite and consensus estimates suggest that inflation will continue to rise in the coming months, which closed the year at 36.08 percent.7

Erdogan walks away from the central bank

The level of inflation and the depreciation of the lira is also a direct result of the decisions of Ergodan that he has not hesitated to change the heads of the central bank if they did not comply with his wishes.

The situation could have changed if one attends to the latest statements by Erdogan in this regard, which would also facilitate BBVA’s work in the country.

“Turkey has neither the intention nor the need to take even the slightest step away from the free market economy and the free exchange of currencies,” the president noted recently.

On the other hand, he invited citizens to bet on the lira instead of euros or dollars, while approved a state-guaranteed plan for private savings against exchange losses and a rise in the minimum wage.

Political intervention does not finish disappearing

This situation could be counterproductive if an analysis such as that of thea Turkish Business and Industry Association that brings together 80 percent of the exporting companies of the country that defends that Turkey has moved away from the “established principles in a market economy”.

In addition, the plan Erdogan obliges Turkish banks to offer their private customers deposits in lira at the rate set by the central bank and if the closing date of the deposit is lower, the customer pays the difference.

The decision affects BBVA’s commercial banking in the country, since the national credit market is currently going through a critical moment due to inflation and the economic situation.

With everything, from Swissquote Bank point out that it is “a very dangerous situation because fiscal and monetary policies have become intertwined, when for an economy to be healthy they must be separate”.