Erdogan: Turkey may face problems if central bank not overhauled

A presidential decree replaced the former head of the central bank by his deputy. (AP)
Updated 10 July 2019
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Erdogan: Turkey may face problems if central bank not overhauled

  • “The central bank is the most important element in the economy’s financial pillar,” Erdogan said
  • “If we do not revise it completely, if we don’t put it on solid foundations, we may face living with serious problems”

ISTANBUL: President Tayyip Erdogan said Turkey could face serious problems if its central bank is not completely overhauled after the dismissal of governor Murat Cetinkaya, the Haberturk news website reported on Wednesday.
A presidential decree on Saturday showed Cetinkaya, whose four-year term was due to run until 2020, had been replaced by his deputy Murat Uysal, reigniting concerns about political interference in monetary policy.
Erdogan told reporters on his airplane returning from a trip to Bosnia that Cetinkaya had made decisions for which a high price was paid and he had not inspired confidence or communicated well with the market, Haberturk said.
“The central bank is the most important element in the economy’s financial pillar,” Erdogan said. “If we do not revise it completely, if we don’t put it on solid foundations, we may face living with serious problems.”
“Most importantly, he did not inspire confidence in markets. His communication with markets was not good,” he added.
Erdogan, a frequent critic of high interest rates, has often called for lower rates to kickstart the now recession-hit economy. The lira, which weakened after Saturday’s move, was unchanged at 5.73 against the dollar after Erdogan’s latest comments.


China central bank moves to support financial institutions

Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. (REUTERS)
Updated 42 min 16 sec ago
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China central bank moves to support financial institutions

  • Many market watchers believe the PBOC will adjust its money market rates in early August if the US Federal Reserve cuts its key rate, as widely expected, on July 31

BEIJING: China’s central bank offered medium-term loans to financial institutions on Tuesday in an attempt to get more affordable funds to struggling smaller firms, as it steps up efforts to support a slowing economy.
With growth in China sliding to a near 30-year low, global financial markets are closely watching to see if the People’s Bank
of China (PBOC) will trim interest rates soon in line with expected easing by other central banks.
While the PBOC left rates on the medium-term loans unchanged on Tuesday, and the injection had been expected, it funneled more lower-cost funds into a credit program aimed specifically at reducing strains on small and medium-sized businesses.
The PBOC lent 497.7 billion yuan ($72.31 billion), including 200 billion yuan through one-year medium-term lending facility (MLF) loans and another 297.7 billion yuan through targeted medium-term lending facility (TMLF) loans, it said in a statement.
The size of the TMLF funding was 11 percent larger than the last such injection in April.
Interest rates for both liquidity facilities were unchanged from previous levels. The one-year MLF and TMLF remained at 3.30 percent and 3.15 percent, respectively.
The total amount roughly offset 502 billion yuan of MLF loans that were set to expire on Tuesday,
ensuring a steady supply of cash.
“Replacing some MLF with TMLF effectively cut funding costs. We should focus on the lower rate, instead of the net drainage on the day,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore.

BACKGROUND

China is keeping all its policy tools within reach as the trade war with the US gets longer and costlier, but sees more aggressive action like interest rate cuts as a last resort given concerns about rising debt.

The central bank said banking system liquidity will be “reasonably ample” after the lending operations.
About 160 billion yuan in reverse repos were also set to expire on Tuesday, according to Reuters calculations based on official data. The PBOC did not say in its statement whether it had drained funds from money markets on Tuesday.

BACKGROUND

China is keeping all its policy tools within reach as the trade war with the US gets longer and costlier, but sees more aggressive action like interest rate cuts as a last resort given concerns about rising debt.

Some traders said Tuesday’s moves were in line with the PBOC’s support measures since last year, which have been aimed at getting more affordable financing to small and private companies.
While Chinese regulators have urged banks to keep lending to distressed firms, such companies are often considered higher credit risks than big, state-owned enterprises.
Traders and analysts still expect the PBOC to cut rates on some of its liquidity tools in coming months.
The PBOC has already slashed banks’ reserve requirement ratios (RRR) six times since early 2018 to free up more money to lend, while guiding short-term market rates lower through liquidity injections in various forms.
Many market watchers believe the PBOC will adjust its money market rates in early August if the US Federal Reserve cuts its key rate, as widely expected, on July 31.
Cheung from Westpac said it was still possible the PBOC could lower the MLF rate after the Fed’s policy decision.
She also has pencilled in a 50 basis-point RRR cut this quarter, and another in the fourth quarter.