• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Shock And Awe From Turkey Which Hikes Overnight Rate By 4.25% To 12%, Blows Away Expectations

Tyler Durden's picture




 

The much anticipated Turkey Central Bank Decision is out and it is a stunner:

  • TURKEY'S CENTRAL BANK RAISES OVERNIGHT LENDING RATE TO 12.00% - this is the key rate, and it was at 7.75% until now, so an epic 4.25% increase, far greater than the 2.50% expected. 
  • TURKEY'S CENTRAL BANK RAISES BENCHMARK REPO RATE TO 10.00% - from 4.50%
  • TURKEY'S CENTRAL BANK RAISES OVERNIGHT BORROWING RATE TO 8.00% from 3.50%
  • TURKEY CENTRAL BANK SETS PRIMARY DEALER RATE AT 11.5% VS 6.75%
  • TURKEY CENTRAL BANK RAISES LATE LIQUIDITY WINDOW RATE TO 15%
     

The full release from the TCMB:

The Monetary Policy Committee (the Committee) has decided to adjust the short term interest rates as follows:

 

a) Overnight Interest Rates: Marginal Funding Rate is increased from 7.75 percent to 12 percent, borrowing rate from 3.5 percent to 8 percent, and the interest rate on borrowing facilities provided for primary dealers via repo transactions from 6.75 to 11.5 percent.

 

b) One-week repo rate is increased from 4.5 percent to 10 percent.

 

c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate is kept at 0 percent, lending rate is increased from 10.25 percent to 15 percent.

 

Recent domestic and external developments are having an adverse impact on risk perceptions, leading to a significant depreciation in the Turkish lira and a pronounced increase in the risk premium. The Central Bank will implement necessary measures at its disposal to contain the negative impact of these developments on inflation and macroeconomic stability. In this respect, the Committee decided to implement a strong monetary tightening and to simplify the operational framework. Accordingly, (i) one-week repo rate is increased from 4.5 percent to 10 percent; (ii) the Central Bank liquidity will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthcoming period.

 

Tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook. Under this policy stance, inflation is expected to reach the 5 percent target by mid-2015.

 

It should be emphasized that any new data or information may lead the Committee to revise its stance.

 

The summary of the Monetary Policy Committee Meeting will be released within five working days.

This is what a shock and awe move is. And it better work. This is how the revised Turkish "corridor" looks as of this moment:

 

For now the TRY (as well as the USDJPY and thus, equity futures) is loving the move, plunging 500 pips against the dollar.

Here is the bottom line: a $10 billion taper (out of $85 billion) just caused Turkey to hike its rate by 4.25%. This is just the beginning.

In the meantime, we hope our Turkish readers don't suddenly need to take out a loan tomorrow morning. It may just be a tad more expensive.

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Tue, 01/28/2014 - 18:06 | 4377020 HedgeAccordingly
HedgeAccordingly's picture

repricing of assets!! –!!! http://hedge.ly/1aThzoP

Tue, 01/28/2014 - 18:09 | 4377026 aVileRat
aVileRat's picture

This is going to escalate quickly.

 

Tue, 01/28/2014 - 18:09 | 4377035 tawse57
tawse57's picture
We'll Be Lucky to Live Through It

http://www.youtube.com/watch?v=Emdzsz_XvfA

 

 

Tue, 01/28/2014 - 18:34 | 4377123 camaro68ss
camaro68ss's picture

Its going to be so much fun watching this s*** blow up. Whats it going to be tomorrow, two bankers jump from the JPM building tomorrow, maybe three? I need to get more beer for this!

Tue, 01/28/2014 - 18:37 | 4377134 ACP
ACP's picture

Is the chairman Paul al-Volcker?

Tue, 01/28/2014 - 19:13 | 4377282 Occident Mortal
Occident Mortal's picture

Kerrunch...

When USD is at negative real rates to borrow, every currency is priced as the reserve currency as credit is originated in North America and working capital flows out of North America (offshoring).

But when USD is not free... There is only 1 reserve currency.

The tide is receding from emerging markets as the USD moves from negative real rates to neutral real rates.

Tue, 01/28/2014 - 20:02 | 4377473 kliguy38
kliguy38's picture

so will the bump last 2 days or 2 weeks

Tue, 01/28/2014 - 18:17 | 4377067 aVileRat
Tue, 01/28/2014 - 18:40 | 4377142 Urban Redneck
Urban Redneck's picture

If I'd known it was gonna be that type of rate hike- I'd have stuck my dick in the mash potatoes.

Tue, 01/28/2014 - 19:02 | 4377230 NotApplicable
NotApplicable's picture

That's a Greenspan quote, right? Cuz that's how I picture his whole career.

and no... that's NOT butter!

Tue, 01/28/2014 - 20:25 | 4377549 max2205
max2205's picture

If that happens here...bondholders get slaughtered. ....I'd be shocked

Tue, 01/28/2014 - 21:25 | 4377757 A Nanny Moose
A Nanny Moose's picture

Sour cream perhaps?

Wed, 01/29/2014 - 03:44 | 4378868 Urban Redneck
Urban Redneck's picture

The Beastie Boys sampled That Ain't My Finger

The metaphor is just as deep and twisted as the rabbit hole...

http://www.imdb.com/name/nm0603646/bio

Tue, 01/28/2014 - 20:12 | 4377510 therover
therover's picture

Classic...I knew what it was before I even watched it.

Tue, 01/28/2014 - 18:43 | 4377162 CrashisOptimistic
CrashisOptimistic's picture

This is why looking to things monetary as the engine of destruction is destined for failure. 

Things monetary can be changed by decree.

The engine of destruction is oil.  Transportion joules.  Those are immune to decree.

Tue, 01/28/2014 - 18:46 | 4377164 Grande Tetons
Grande Tetons's picture

2015

Geez, honey...you know they got this new Obama retirement plan at work...I can get 8 percent on my money with a T Bill...waddya think, hon. 


Tue, 01/28/2014 - 19:02 | 4377236 NotApplicable
NotApplicable's picture

All while saving 8 percent of your purchasing power.

Tue, 01/28/2014 - 18:54 | 4377196 Silver Garbage Man
Silver Garbage Man's picture

Question.Hey World, how did you go bankrupt?
Answer. Slowly, and then ALL A ONCE!

Tue, 01/28/2014 - 22:58 | 4378208 logicalman
logicalman's picture

That's the thing about exponential stuff....

Starts off real gentle for quite a while.....

Begins to look worrying......

Too late.....

WHAM.

It's the nature of the beast.

Tue, 01/28/2014 - 22:35 | 4378116 SAT 800
SAT 800's picture

"Tight monetary policy will be maintained until there's an improvement in inflationary outlook"--- The Beatings will continue until Morale improves.

Tue, 01/28/2014 - 18:31 | 4377113 SteveNYC
SteveNYC's picture

I feel this will be the end of the taper. It will either A) stop where it is and they'll continue to print $65Bn/month, or B) reverse by the summer. Many people on this site have discussed the Fed being boxed in. I guess its those annoying "unintended consequences"......

Tue, 01/28/2014 - 18:53 | 4377192 kaiserhoff
kaiserhoff's picture

I see your point, but do the owners of the Fed care about the third world?

More to the point, the Tylers are very solid on bonds, and they've been describing the collateral and quality problems, failures to deliver, busted repo deals etc.  The Fed is trying to drain liquidity WITHOUT RATES GOING NUTS.  I think Mr. Yellen's job just got a lot more difficult.

Tue, 01/28/2014 - 21:08 | 4377695 donsluck
donsluck's picture

The future of banking is in Africa. Asia must be sacraficed.

Tue, 01/28/2014 - 18:57 | 4377214 ElvisDog
ElvisDog's picture

I don't think the Fed gives a shit about the troubles of the EM economies except if it threatens their position. They're not tapering because want to or think it's the right thing to do. They're tapering because they have to.

Tue, 01/28/2014 - 19:57 | 4377452 SteveNYC
SteveNYC's picture

Good points, and I agree that they don't give a shit about EM economies. However, we forget that the large banks (US likely to a degree, but most certainly EU and EM) are stuffed with EM paper, and God knows what else. The Fed lets the EMs go, then so goes the banking system again via mark downs and defaults, and they have Bernanke Crisis II on their hands, only worse and with less "coping mechanisms".

The problem is, it is so interconnected that the moment one thing moves, 100 other things simultaneously shift. While they have to taper, it is like an alcoholic that has cirrhosis of the liver: they have to stop drinking, but sometimes, they simply can't despite their ill health. 

In regards to the treasury/collateral issue, would the Fed not simply shift strategy and alter the allocation of MBS purchases vs. treasuries, yet keep the aggregate the same? Either way, same end story right, different plot. Quality discussion, thanks.

Tue, 01/28/2014 - 20:01 | 4377471 kaiserhoff
kaiserhoff's picture

Interconnected? Yes.  Too many moving parts.

What's a few hundred trillion in derivatives among friends;)?

 

Tue, 01/28/2014 - 22:59 | 4378213 logicalman
logicalman's picture

Add to all of that the dangers of leverage.

Tue, 01/28/2014 - 19:21 | 4377324 Occident Mortal
Occident Mortal's picture

Nobody outside of Turkey gives a shit about Turkey.

This is the basis of all diplomatic relations around the world.

Every country ALWAYS puts their own interests first. Always.

Even the US/UK would never put the other first. And they're basically a single country that pretends to be separate just so they get 2 votes at the UN, IMF, BIS, world bank, etc.

Tue, 01/28/2014 - 20:59 | 4377674 Offthebeach
Offthebeach's picture

Its more like countries exist for sheeple fairytales. The people running Turk money are Turks but in truth they are EU/Fed/BIS loyal true citizens. Turkey could vaporize and they will be taken well cared for. This crises is just a opportunity to further homogenize peculiar Turkish behaviors. Get them more in tune, in step, on the same team...

Tue, 01/28/2014 - 18:43 | 4377152 Silver Garbage Man
Silver Garbage Man's picture

If only there was a big public event in the near future we could drop a false flag on and launch massive worldwide QE then everything will be fine!!
Wait a second............

Tue, 01/28/2014 - 18:07 | 4377022 Frank -THE COIN -
Frank -THE COIN -'s picture

Now thats what i call a Thanksgiving !

Tue, 01/28/2014 - 18:25 | 4377098 Grande Tetons
Grande Tetons's picture

One day this may seem dovish. 

Tue, 01/28/2014 - 18:08 | 4377023 Dr. Engali
Dr. Engali's picture

Damn! That'll leave a mark!

Tue, 01/28/2014 - 18:24 | 4377093 teolawki
teolawki's picture

Yep. Of the skid mark variety.

Tue, 01/28/2014 - 18:08 | 4377024 Agent P
Agent P's picture

Double Shock Power! 

Tue, 01/28/2014 - 18:12 | 4377042 Grande Tetons
Grande Tetons's picture

Kyle Bass....you are welcome. 

Tue, 01/28/2014 - 19:02 | 4377237 Big Brother
Big Brother's picture

http://finance.yahoo.com/q?s=TRYJPY%3DX&ql=1

5.57% - Now that's what I'm takin' about!  Lever that shit up 50:1.

Tue, 01/28/2014 - 19:19 | 4377314 Grande Tetons
Grande Tetons's picture

Looks good for now....waiting to see how the carry trade reacts after Old Yellen/Benny the Bozo tomorrow. 

Tue, 01/28/2014 - 18:08 | 4377027 tawse57
tawse57's picture

OK, numpty question here - what, if any, global implications will this have? Or is this just going to be Turkey isolated?

Why - from a Turkish AND global perspective - must it work?

Tue, 01/28/2014 - 18:29 | 4377056 kaiserhoff
kaiserhoff's picture

If experience is a guide, it will,

 

A - stop the currency run, because the world is awash in hot money looking for a home, and

B - make life miserable for local borrowers, as they struggle to pay the higher rates.

Will it spread?  Is the Pope Catholic?

I don't know anything about the Turkish economy, but the first and most powerful effect of a rate shock, is usually to stop all real estate deals and mergers dead in their tracks.  The reason you would expect it to spread, is that it puts more pressure on all roughly equivalent, struggling currencies.  Their name is legion.

Tue, 01/28/2014 - 20:42 | 4377603 kaiserhoff
kaiserhoff's picture

Funny.  Why didn't I buy a boat load of those paperbacks?

Tue, 01/28/2014 - 18:45 | 4377132 LMAOLORI
LMAOLORI's picture

 

 

 

tawse57

You might find this interesting

 

Emerging markets forced to tighten by US and Chinese monetary superpowers

 

The global chain reaction resembles what happened in the East Asia crisis in 1997-1998 when domino effects swept the region

 

http://www.telegraph.co.uk/finance/financialcrisis/10603363/Emerging-mar...

Tue, 01/28/2014 - 19:03 | 4377242 NotApplicable
NotApplicable's picture

A.k.a. the "Not So Invisible Fist."

Tue, 01/28/2014 - 20:05 | 4377484 kaiserhoff
kaiserhoff's picture

Good call on the Asia thing.

Lots of similarities.  Too many boats lashed together.

Tue, 01/28/2014 - 18:10 | 4377032 Major Major Major
Major Major Major's picture

Gobble Gobble, Bitchez

Tue, 01/28/2014 - 18:14 | 4377058 Pumpkin
Pumpkin's picture

LoL!  That one hurt me.  Mean, but funny.

Tue, 01/28/2014 - 18:09 | 4377033 stant
stant's picture

didnt those sobs get the memo!! nothing before the next two speeches!

Tue, 01/28/2014 - 18:09 | 4377034 order66
order66's picture

Whacko moves from 3rd world central bank. That's about as bullish as it gets for ES.

Tue, 01/28/2014 - 18:11 | 4377041 tmosley
tmosley's picture

>Turkey

>Third world

...

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