How Turkey Can Lower Borrowing Costs Without Cutting Rates
- Weaker lira makes it harder to maintain recent easing cycle
- Lower reserve requirement could boost liquidity without cuts
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Caught between a president demanding lower interest rates and investors eager for currency stability, Turkey’s central bank may try to please both as it seeks to reduce borrowing costs.
Liquidity remains tight in Turkey, with the cost of bank loans close to the highest level in almost four years even after rate cuts in March and April, while a recent plunge in the lira has made it harder to maintain the nascent easing cycle. Instead, the central bank could boost credit by reducing the amount of cash it forces commercial lenders to keep locked up with the regulator.