TURKISH CENTRAL BANK COMPLETES SIMPLIFICATION PROCESS
The Central Bank of the Republic of Turkey (CBRT) announced on May 28 that it had decided to complete a simplification process for the operational framework of its monetary policy. “The one-week repo rate will be the policy rate of the Central Bank,” it said. “This rate will be equal to the current funding rate (16.5 percent).”
“The Central Bank overnight borrowing and lending rates will be determined at 150 basis points below/above the one-week repo rate,” the bank added. The new operational framework will take effect on June 1.
For years the Bank has relied on a complex system of multiple rates, which economists say made monetary policy less predictable. It has been funding through its late liquidity window from 4-5 p.m. (1300-1400GMT) - which it raised by 3 percentage points to 16.5 percent after a May 23 unscheduled Monetary Policy Committee (MPC) to shore up a tumbling lira.
The previous week, the TRY/USD exchange rate had hit a historic high of around 4.93, versus 3.78 at the beginning of 2018. Last year’s average rate was 3.65. After the bank’s announcement on May 28, the TRY/USD rate fell to below 4.60 as of noon local time (0900GMT), from 4.7210 by market close on May 25. On May 24, the bank also raised the upper limit of its forward foreign exchange sale position for the second quarter of this year and the next day fixed the foreign exchange rates for rediscount credit repayments for exports.
Simplification in the works for years
In the recent years, the Central Bank has been working to simplify the process of its monetary policy’s operational framework and enhance the predictability of monetary policy. At the end of 2016, the Bank decided to reduce its number of MPC meetings - where short-term interest rates with overnight, one-week repo, and late liquidity windows are determined - from 12 times a year to eight. Under the bank’s schedule, the fifth MPC meeting this year is set for June 7.