Turkey’s central bank and commercial lenders held a crucial meeting to address recent market turmoil, as confirmed by the Turkish Banks Association. This followed reports of potential coordination discussions and a significant selloff in Turkish assets. The meeting occurred shortly after the detention of Istanbul Mayor Ekrem Imamoglu, a key political figure, which heightened investor concerns about a potential policy shift. Finance Minister Mehmet Simsek previously assured banks of government action to mitigate the “temporary” volatility. The central bank already took steps to bolster the lira, including raising the overnight lending rate to 46% and suspending lending at the benchmark rate. A 91-day liquidity bill auction, the first in nearly two decades, is also planned to absorb excess lira. These actions led to a sharp rise in the lira overnight reference rate.
A high-level meeting between Turkey’s central bank and the nation’s commercial lenders took place before markets opened, as confirmed by the Turkish Banks Association. The discussions centered on “recent market developments.”
Prior reports from Bloomberg, citing sources familiar with the matter, indicated that central bank representatives planned to engage with banks to explore collaborative measures and address the recent downturn experienced in Turkish financial markets.
This assembly represents a significant dialogue between Turkey’s financial institutions and the central bank, coming shortly after the detention of Istanbul Mayor Ekrem Imamoglu, a prominent political figure. Imamoglu’s custody sparked concerns, contributing to a significant decline in the value of the lira, Turkish equities, and bonds. Investors expressed apprehension about a possible shift in Turkey’s current economic trajectory.
Finance Minister Mehmet Simsek, in a separate meeting with banking executives on Friday, provided assurances that the government would deploy all available resources to counter what he characterized as short-term market instability.
Imamoglu, widely considered the chief political rival of President Recep Tayyip Erdogan, was detained on Sunday on allegations of corruption. The court overseeing the case opted not to issue a separate arrest warrant on terrorism-related charges.
In an effort to stabilize the lira and maintain tight financial conditions, the central bank proactively implemented several measures last week. The overnight lending rate was increased by 200 basis points, reaching 46%, effectively raising the average borrowing costs for commercial banks. Furthermore, lending at the central bank’s benchmark rate of 42.5% was temporarily halted.
Additionally, The Turkish central bank plans to conduct an auction for 91-day liquidity bills, for the first time in two decades. This operation seeks to eliminate surplus lira in the financial system.
As a consequence of these interventions, the lira overnight reference rate – an indicator of overnight borrowing expenses – experienced a surge of over three percentage points, settling at 45.7%.