Banks are being forced to help the treasury over a hump in domestic debt repayments in August and September, bankers say. A central bank communique on 21 July aims to oblige banks to exchange maturing shorter-term treasury bonds in their mandatory reserves for one-year bonds at 6 per cent above the wholesale price index, they say.
The treasury wants revenues from the forced exchange to ease a repayments hump in late August and early September of TL 75 million million ($2,500 million) and TL 80 million million ($2,666 million), respectively, say bankers. The exchange at the index-linked rates will also contain upward pressure on the treasury’s own borrowing rates.
The communique extended the average term of government paper held in mandatory reserves to a year from 210 days. Bankers say this amounts to a partial restructuring of domestic debt, although the treasury claims instead that it introduces inflation-linking into the interest rate structure.
The central bank communique came after banks purchased only a small amount of the initial issues of the one-year, indexed bonds on 18 and 19 July. The banks had said that 6 per cent was an insufficient margin, and has pressed for 12 per cent instead.
The repayments hump will mainly arise due to maturities of massive public issues of three-month bills at a net period interest rate of 50 per cent in late May and June. This shock tactic has been successful so far in restoring public confidence in government paper, and in stabilising foreign exchange rates by switching demand to lira instruments.