Turkey's Central Bank Moves Early to Boost Treasury Buffer

(Bloomberg) -- Turkey’s central bank scheduled an extraordinary board meeting for earlier than usual to share its profit, a move likely designed to shore up the Treasury’s cash reserves.

The nation’s fiscal authority -- which holds a majority stake in the central bank and collects profits in the form of taxes and dividends -- raised about 10 percent less than targeted in lira funding last year as it sought to keep a lid on borrowing costs before local elections in March.

While the central bank’s board typically convenes each April, this year’s first meeting is planned for Jan. 18 and will discuss an advance payment from its 2018 profit, according to the agenda. The Treasury faces its biggest monthly financing needs since 2011 in February, and an earlier-than-expected cash injection would allow it to continue to curb bond supply and shore up the battered market.

“The idea seems to be to avoid borrowing larger amounts from the market ahead of elections,” said Inan Demir, an economist at Nomura Plc. in London.

Bonds gained after the announcement, pushing the yield on two-year government debt down 25 basis points to 19.6 percent, the lowest since July. Yields have dropped more than 850 basis points from a high in August. The Treasury has penciled in 21.8 billion liras ($4 billion) of borrowing in February, the most since January 2011.

Turk Cenbank Plans Early Meeting to Distribute 2018 Profits

Income from the regulator has boosted Turkey’s budget in the last few years and provided crucial revenue for authorities as they tried to maintain fiscal discipline. Earlier this year, the central bank sent more than 70 percent of its 2017 profit of around 21.5 billion liras to the Treasury, according to its most recent annual report.

The Turkish central bank is a joint stock company where the Treasury holds more than 55 percent of all the shares. But a legal cap on dividends has limited significant payouts to the estimated 6,300 shareholders. Unlike Switzerland and a few other countries where the central bank is publicly traded, Turkey has no market for these stocks.

The invitation didn’t specify who called for the central bank’s extraordinary meeting, but management is required by law to convene the board if requested to do so by the majority of shareholders.

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