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.