- Measure is part of the efforts by the country’s monetary authority to cut borrowing costs
According to Gulf News article published on March 11, 2023, Türkiye’s central bank is forcing commercial lenders to lower the interest rates they charge for consumer loans as a part of its efforts to bring borrowing costs closer to the official benchmark rate.
Lenders charging compound interest rates on consumer loans between 18.56 per cent and 20.62 per cent will be required to park at the monetary authority lira denominated government bonds worth 20 per cent of the new credit they create, according to a central bank circular seen by Bloomberg News.
If banks charge a higher interest rate on the loans, the amount of government bonds they should lock at the central bank should equal 90 per cent of the credit they create, making it prohibitively expensive for banks to extend loans with higher interest rates. The changes are effective immediately.
The central bank declined to comment.
The latest measure is part of the efforts by the country’s monetary authority to cut borrowing costs as it aims to bring consumer loan rates closer to the benchmark policy rate of 8.5 per cent. Similar steps in 2022 contributed to a rally in Turkish bonds, with the yields on both two and 10-year local government debt tumbling.
The move likely “counterintuitively aims to cool off consumer lending, possibly to prevent pressure on the currency,” said Cagdas Dogan, research director at Tera Yatirim in Istanbul. “Banks are likely to limit supply of consumer loans at the restricted rates, which are well below their marginal cost of funding.”
