Turkish Central Bank’s First Post-Vote Moves Focus on Gold, Cash

2023-05-16 18:50

Turkey’s central bank unveiled its first measures after Sunday’s presidential elections, adding to a tangle of rules it’s

Turkey’s central bank unveiled its first measures after Sunday’s presidential elections, adding to a tangle of rules it’s used to manage the financial system.

The focus of the new regulations, which went into effect on Tuesday, is on muting demand for gold among households and deterring them from cash withdrawals using credit cards, an option increasingly favored by people as a cheaper alternative to loans.

The central bank is putting the onus on complying with the restrictions on commercial lenders by forcing them to hold additional government bonds for some transactions carried out by their customers, according to a document sent by the regulator and seen by Bloomberg.

Banks are now required to buy government bonds equivalent to 30% of clients’ purchases of gold or jewelry made with credit cards whose limit is above 50,000 liras, or about $2,500
Lenders will additionally have to buy government bonds equivalent to 30% of cash withdrawn using credit cards
Banks will also face consequences if their loan growth exceeds 3% from the previous calculation period by having to purchase government bonds in amounts equal to their credit overshoot

The effort is part of an unorthodox strategy that’s already saddled banks with government bonds and kept interest rates artificially low to encourage economic growth. Turkish assets are meanwhile slumping as the country entered two weeks of political uncertainty before a runoff vote.

The latest measures also make clear that demand for gold remains a key concern, contributing to deep trade imbalances and keeping the local currency under pressure.

Households and businesses have been hoarding bullion and dollars to hedge against inflation that climbed over 85% last year as sharp declines in the lira eroded the value of their savings.

With President Recep Tayyip Erdogan’s comfortable lead in the first round of the elections, the market is bracing for the likelihood that the government won’t unwind unconventional economic policies any time soon.

Author: Beril Akman, Asli Kandemir and Kerim Karakaya