Turkey: Turkish Central Bank Raises Interest rates 550 Basis Points

[JohnyMac]

I just read on ZeroHege that Turkeys Central bank raised their loan rates 550 bp's (4.50% to 10%). I did a little bit of research and hers is a short excerpt from Trading Economics.

Bank of Turkey Raises Rates Sharply

At an emergency policy meeting on January 28th, the Central Bank of Turkey decided to raise the benchmark repo rate to 10 percent from 4.5 percent and the overnight lending rate to 12 percent from 7.75 percent reversing years of policy after the lira slid to a record low.

Why should I care you may ask. Well the reason is that the US Dollar is becoming so deflated they had to do this to buoy their Lira. Will the EU Central bank follow suit? Our Federal Reserve?

I doubt that our Fed will raise interest rates by 500bp's but I bet you within the next 30-60 days it will go up 50-100bp's. After all they are still printing $75B (Down from $85B) a month in QEing.

All around the world the dike we call "global finance" is starting to break apart and the poor little Dutch boy is now busier than a "one armed paper hanger" trying to keep up with the crumbling dike.

Let's see:
Argentina, 30% inflation rate and loan rate of 14%
Turkey, 37% inflation rate and loan rate see above
Russian, 6.5% inflation rate and loan rate of 8.25%. Has put restrictions on cash withdrawals
China, 5.6% inflation rate and loan rate of 6.0%. Has put restrictions on cash withdrawals
USA, 3.3% inflation rate and a loan rate of 3.6%. Remember that the Fed is printing $75B a month.

This year should be interesting.

PS: I heard a rumor that the reason put the cap on what a depositor could withdraw was so Rules couldn't be smuggled out of the country by visitors to the Olympic Games. Again just a RUMOR.

[APX808]

Loan rate is the rate the bank applies to you when they lend you money?
If that's the case the Argentinian numbers are wrong, the inflation yes is around 30%, the bank lend you money at 75,81% including paperwork and whatnot.
And if you deposit money in the bank they give you 21%

[Well-Prepared Witch]

Interesting.  Here's the Bloomberg article on the rate increase.  Lots of good info.

http://www.bloomberg.com/news/2014-01-28/turkey-more-than-doubles-main-interest-rate-to-halt-lira-slump.html

[JohnyMac]

75.8% APX...OH MY HEAVENS! How can business do business? Most businesses operate on a "line of credit" which they draw from as needed and pay back quarterly.

Another good article Wellie. If you had to take a guess, what do you think home loan interest rates will be in the next 30, 90, 6 months? You see my prediction I would love to hear what someone in the industry thinks. Thanks

[APX808]

In Argentina practically there are not loans, you have to do business with what you have.
Sometimes the government gives some subsidized loans for house buying or to promote certain industry sectors, but that's all.

[Well-Prepared Witch]

Well, assuming the continued pull back on quantitative easing, and no major crises or government actions, my guess is 7.5% by the end of the year.  I think it should be 10% by the end of the year, but I really think the industry is going to fight increasing it tooth and nail because of the business they're losing.  Prime is 3.5% and a conventional 30 yr fix is around 4.375% (not counting adjustors for credit, loan type, etc.).  If we go up gradually I think it'll come close to doubling by the end of the year.  If we go up as *I* feel we should to compensate for market factors we should come close to tripling that.

I know it's not popular to want the interest rate raised, but I want to see us dealing with what I see the "real" economy to be, not the soft-ball, QE, strictly managed rates we've got right now.  They're, IMHO, artificially being kept low because even at 4.375% people have pretty much stopped refinancing unless they have to.  Anyone who could refi'd when rates were at 3%. 

Legal caveat: I am not a licensed loan officer, not a lawyer, etc. This is my opinion, not that of my employer and I would very much appreciate it if you don't sue me for sharing my opinion.

[JohnyMac]

Wellie wrote:
Legal caveat: I am not a licensed loan officer, not a lawyer, etc. This is my opinion, not that of my employer and I would very much appreciate it if you don't sue me for sharing my opinion.

Wellie you are a HOOT!  Smart as a whip with a great sense of humor!

I too would like the rate to go up a bit more aggressively however I sense the politicians don't want that to happen.

Thanks for your opinion.   

[Well-Prepared Witch]

Thanks. Of course, with the tapering throwing emerging markets into chaos, everything could change and we could see lower rates for longer and a resurgence of the refi boom. I don't think that'll happen, but you never know.

Sent from my DROID BIONIC using Tapatalk

[JohnyMac]

I "heard" this morning, however have not seen it in print, the Fed is going to cut back monthly bond buying by another $10B a month. Reducing QEing from $75B to $65B a month. We will see....

[Well-Prepared Witch]

That's the plan they've said they're sticking to. $10B/mo taper.