Is the CBRT going behind Erdogan's back?
The Turkish central bank decided to not open its 1-week repo auction today yet again. That means banks will be forced to seek funding through the overnight lending rate - which if you remember from this post here is 150 bps higher than the repo rate.
The 1-week repo rate is currently at 17.75% and after not opening the auction yesterday, the average funding cost for banks rose to 18.14% (or up 39 bps). But as of today's close, the average funding cost is set to rise to 19.25% (up 150 bps) according to local banks. In essence, that's basically the theoretical limit for the time being.
(h/t Ziad Daoud, Bloomberg Economics) A piece by Bloomberg though says that this may yet stretch further. If the CBRT decides to keep only the late liquidity window open then we may see borrowing costs rise another 150 bps to 20.75%.
But I'm a little doubtful they'd resort to the late liquidity window, because that was the arrangement they had in place prior to implementing the narrow interest rate corridor back in June.
