Turkey
Turkey[TRY]
Institutional framework
The law on the Central Bank of the Republic of Turkey (The CBRT) stipulates that the primary objective of the CBRT is to maintain price stability. In order to maintain price stability, the CBRT determines the monetary policy to be implemented and the instruments thereof on its own discretion. Without prejudice to the primary objective of price stability, the CBRT supports the growth and employment policies of the Government.
Under the inflation targeting regime, which has been implemented since 2006, the CBRT and the Government jointly determine and announce the inflation targets to be attained over the next three years. The inflation target is the year-end inflation rate that is calculated as the year-on-year percentage change of the consumer price index (CPI). Like most of other central banks, the CBRT uses short-term interest rate as the main policy instrument. In this regard, one-week repo rate is the main policy tool. However, the CBRT uses other monetary tools in order to improve functioning of monetary policy transmission mechanism. The policy rate is determined by the Monetary Policy Committee (The MPC), which meets on a monthly basis at pre-scheduled meetings. Its decisions are announced on the day of the meeting at 2.00 p.m., and a summary of the meeting including the MPC's assessments are published within five working days.
Key features of the monetary policy implementation framework
According to the monetary policy implementation framework in Turkey, the CBRT aims at ensuring that the short-term interest rates materialize around the policy rate, which is the one-week repo rate. Keeping the short-term interest rates align with the policy rate, the CBRT seeks to influence longer term interest rates that steer aggregate demand and inflation expectations.
To attain this objective, the CBRT evaluates the liquidity conditions in the market and conducts open market operations on a day-to-day basis. In addition to open market operations, standing facilities are used by the CBRT in the framework of the monetary policy objectives to effectively limit intraday volatility of short-term rates. In this framework, the CBRT provides Turkish lira (TRY) borrowing and lending facilities for banks and intermediary institutions at specific short-term interest rates.
Types of Open Market Operations
Repo/ Reverse Repo
In general, repo transactions are conducted to provide liquidity to the banking system while reverse repo is a transaction conducted to withdraw the excess liquidity in the market.
In this framework, in repo (reverse repo) transactions the CBRT buys (sells) securities from intermediary institutions authorized to conduct open market operations with an agreement to sell (buy) the same securities back on some specified future date.
Outright Purchase/ Outright Sale
Outright purchase transactions are generally conducted in case of permanent liquidity shortages in the market. In this type of transaction, the CBRT purchases from the authorized banks/intermediary institutions the government securities in circulation. The size of the open-market operations (OMO) portfolio and details regarding the outright purchase program is revealed to the public in the Annual Monetary and Exchange Rate Policy Texts.
In outright sale transactions, the CBRT sells the government securities in its open market operations portfolio to authorized banks/intermediary institutions generally in case of permanent excess liquidity in the market.
Turkish Lira Deposit Purchase Auctions
The CBRT conducts Turkish lira deposit buying auctions to enhance the effectiveness of the operations for sterilizing excess liquidity in the market by purchasing Turkish lira deposits from banks through auctions.
Standing Facilities Provided by the Central Bank
Turkish Lira Deposit & Lending Facilities
Turkish lira deposit borrowing and lending facilities are the deposit facilities provided by the CBRT for banks that are willing to borrow or lend Turkish lira within their limits and against collateral at interest rates announced by the CBRT for O/N maturities.
Late Liquidity Window Facility
The Late Liquidity Window is the TL borrowing facility that the CBRT -as the lender of last resort- provides for banks to meet their temporary liquidity needs at the end of the day in order to avoid possible problems in the payment systems.
Through the Late Liquidity Window Facility, banks can also lend their excess liquidity at the end of the day.
Intraday Liquidity Facility
The intra-day liquidity facility (IDLF) is a borrowing facility provided by the CBRT for banks with the aim of meeting urgent liquidity needs in the banking system and to remedy any bottlenecks in payment systems during the day.
This facility is available for banks throughout the day against commission, to the extent of their limits and collateral, and on condition that they pay it back at the end of day.
FX Swap Operations / FX Depo Transactions
The CBRT uses swap transactions in order to contribute to the TL and FX liquidity management of banks. TL currency swap transactions and TL gold swap transactions conducted via the quotation method with one week maturity, Borsa Istanbul Swap Market transactions and swap auctions conducted via the traditional method are used in line with the banks' needs. The one-week repo auction rate are valid for the TL interest rate in FX swap transactions conducted via the quotation method and BIST Swap Market transactions.
Moreover, the CBRT employs TL and FX gold swap transactions, TL gold swap auctions and location swap transactions with the domestic banks.
The CBRT provides banks with FX liquidity at one-week and one-month maturities at the CBRT FX Deposit Market, with a limit of approximately USD 50 billion in total. Banks are allowed to pledge collateral FX deposits and gold deposits with the CBRT with varying maturities up to three months within their limits.
Reserve Requirement Policy
Moreover, the CBRT uses reserve requirement ratios as an instrument to support the monetary stance and the monetary transmission mechanism in pursuit of the price stability objective within a plain framework
Institutional setup of monetary policy decisions and operations
| Policy decision body, size and composition | Monetary Policy Committee |
|---|---|
| Major mandates 1 | The primary objective of the Bank shall be to maintain price stability. The Bank shall determine on its own discretion the monetary policy that it shall implement and the monetary policy instruments that it is going to use in order to maintain price stability. The Bank shall, provided that it shall not conflict with the objective of maintaining price stability, support the growth and employment policies of the Government. |
| Decision-making process | Majority Vote |
| Frequency / length of meetings | 12 times a year |
| Frequency of announcements | Same |
| Main policy target | 1-week repo rate |
Overview of key features
| Key policy rate | % 9 |
|---|---|
| maturity (days) | 7 days |
| Operating target | |
| maturity (days) | |
| Standing facilities | Lending, deposit |
| Corridor width (bp) | 300 bp |
| Reserve requirements | Yes |
| maintenance period | 14 days |
| Main operation 2 | RP |
| functions | Providing liquidity to the system. |
| maturity (days) | 5-12 days |
| regular interval | 1 week |
| frequency | Daily |
| Overall frequency | |
| Discretion left to operational desk | |
| Key policy signals via | |
| announcement | |
| keynote tender | |
| standing facility | |
| other |
Monetary policy communication
| Explicit use of forward guidance | Yes. |
|---|---|
| Timing / media of policy announcement | MPC decisions are announced on the day of the meeting at 2:00 p.m on official website of CBRT. |
| Policy announcement and documents | Announcement of policy rate (one-week repo auction rate) and press release. |
| Explaining policy decisions | Policy decision is announced on CBRT website via Press Release with a brief rationale. |
| Dissemination of minutes (timing / media) | The Summary of the MPC Meeting that includes detailed assessments of the Committee is posted on the CBRT website within five working days following the meeting. |
| Content of minutes | The Summary of the MPC Meeting implies an outlook for inflation developments, economic and financial conditions, possible risk factors and the monetary policy stance and its rationale. |
| Publication of forecasts 3 | No. Forecasts are announced via quarterly-published Inflation Report. |
| Publication of projected path of policy rate 4 | No |
Reserve requirements: ratios and size
| Main functions served | Liquidity management and macro-prudential purposes |
|---|---|
| Domestic currency | 3–8% 5 |
| Foreign currency | 5–26% 6 |
| Average | 7.6% for TRY denominated liabilities, 22% for foreign currency denominated liabilities 7 |
| Required reserves | TRY 1539 bn 8 |
| Required reserve as % of GDP | 12,25% 9 |
| Actual reserves | TRY 2280 bn 10 |
| Actual reserve as % of GDP | 18,2% 11 |
Main features of reserve requirements
| Averaging | Y 12 |
|---|---|
| Carry-over | Y 13 |
| Type | Lagged |
| Maintenance period | 14 days |
| end (day) | Fridays (every two weeks) 14 |
| Calculation period | 14 days 15 |
| end (day) | Fridays (every two weeks) 16 |
| Lag before maintenance | 14 days |
| Vault cash | N |
| restrictions | |
| Remuneration | N 17 |
| average rate | |
| marginal rate | |
| Framework last changed | 31 August 2022 |
Liquidity position and forecasting
| Structural Position | Liquidity Deficit |
|---|---|
| Most volatile factor(s) | Autonomous Factors (Treasuary's transactions and Banknotes in Circulation) |
| Most unpredictable factor(s) | Treasuary's transactions |
| Forecast horizon(s) | 14-18 days ahead |
| Frequency | Daily |
| Frequency of revision | Daily |
| Forecast published? | The forecast is not publicly available |
Standing facilities: lending / market ceiling
| Name | Standing lending facility |
|---|---|
| Form | Repo, collateralized loan |
| Pricing method | Base rate + 150bps |
| Maturity | O/N |
| Access limited by/to | Eligible collateral, CBRT counterparties only |
| Function(s) | Limit interest rate volatility |
Standing facilities: deposit / market floor
| Name | Standing deposit facility |
|---|---|
| Form | Deposit |
| Pricing method | Base rate - 150bps |
| Maturity | O/N |
| Access limited by/to | No limit. CBRT counterparties only |
| Function(s) | Limit interest rate volatility |
Open market operations: repo or reverse repo
| Name/Type 18 | RP, RS |
|---|---|
| Maturity | Weekly, 1 Day |
| Frequency | Daily |
| Pricing method | Auction (Quantity) - Quotation |
| Access limited by/to | CBRT counterparties only. Limited to the half of the announced amount of the auction for each participant. |
| Function(s) | Providing liquidity to the system. |
Open market operations: central bank bills
| Name | |
|---|---|
| Total issuance | |
| Maturity | |
| Restrictions on possible maturities | |
| Pricing method | |
| Access limited by/to | |
| Discretion left to operational desk |
Open market operations: FX swaps
| Maturity | 1W, 2W, 1M, 3M |
|---|---|
| Frequency | 1W: Every business days Others: no definite frequency, when deemed necessary |
| Pricing method | 1W: Quotation method 2W, 1M, 3M: Conventional (multi-price) auction method |
| Access limited by/to | Limited to banks authorised to conduct transactions at the Foreign Exchange and Banknotes Market of CBRT |
| Function(s) | The CBRT’s swap facilities provide banks with flexibility in their TRY and FX liquidity management. |
Other significant liquidity management means
| Name/Type 19 | Lender of last resort transactions-Late Liquidity Window(LLW) |
|---|---|
| Form | LLW deposit lending/borrowing, LLW repo |
| Frequency | Daily |
| Maturity | O/N |
| Pricing Method | 0, Base rate + 300bps |
| Access limited by/to | Eligible collateral, CBRT counterparties only |
| Function(s) | To avoid temporary liquidity shortages that may cause interruptions in the payment system and technical payment issues that may obstruct the functioning of financial markets |
Settlement systems and intra-day liquidity facilities
| Settlement system | |
|---|---|
| Intra-day liquidity facility | Intraday limits |
| Charge | No charge |
| Foreign currency settlement system | |
| CLS participation by banks | |
| Other settlement system(s) | EFT, ESTS |
Collateral
| Standing facilities: List of eligible collateral | - Government bonds Government bonds by Treasury of Turkiye - Lease certificates issued in domestic market by ALCTT (Asset Leasing Company of Turkish Treasury) - IILM Sukuk - Eurobonds issued by the Undersecretariat of Treasury of Turkiye - Lease certificates issued by ALCTT - Foreign bonds and notes - FX deposits - FX banknotes deposits - Gold deposits - Liquidity bills - Asset backed securities / Mortgage backed securities / Covered bonds |
|---|---|
| Standing facilities: Discretion of central bank on collateral 20 | CBRT decides collateral types and specific conditions on collaterals for standing facilities, if necessary |
| Open market operations: List of eligible collateral | - Government bonds by Treasury of Turkiye - Lease certificates issued in domestic market by ALCTT (Asset Leasing Company of Turkish Treasury) - IILM Sukuk - Eurobonds issued by Treasury of Turkiye - Lease certificates issued by ALCTT - Foreign bonds and notes - FX deposits - FX banknotes deposits - Gold deposits - Liquidity bills - Asset backed securities / Mortgage backed securities / Covered bonds |
| Open market operations: Discretion of central bank on collateral 21 | CBRT can expand the collateral types. |
Dissemination of operational information: liquidity forecast
| Forecast published? | The forecast is not disseminated. |
|---|---|
| Channel(s) | |
| Timing | |
| Remarks |
Dissemination of operational information: open market operations
| Volume and price published? | Yes |
|---|---|
| Channel(s) | Data is published via data dissemination agencies such as Refinitiv, Bloomberg, Forex and Anadolu Agency. Besides it is published at CBRT website. |
| Timing | At data dissemination agencies data is published as it becomes available whereas at CBRT website it is published daily. |
Dissemination of operational information: standing facilities
| Lending facility usage: Channel(s) | Refinitiv, Bloomberg, Forex, CBRT website |
|---|---|
| Lending facility usage: Timing | Daily at 4 pm 22 |
| Deposit facility usage: Channel(s) | Refinitiv, Bloomberg, Forex, CBRT website |
| Deposit facility usage: Timing | Daily at 4 pm 23 |
Other information dissemination
| Type | LLW |
|---|---|
| Channel(s) | Refinitiv, Bloomberg, Forex, CBRT website |
| Timing | Daily at 18 pm |
1 Describe as well the legal status of the mandate and involvement of government
2 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).
3 For instance, economic and inflation forecasts related to policy decision.
4 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.
5 Reserve requirement ratios of the Turkish lira denominated liabilities are differentiated by liability types and maturities. TL reserve requirement ratio for financing companies' Turkish lira commercial loan extension is 20%.
6 Reserve requirement ratios of the foreign currency denominated liabilities are differentiated by liability types and maturities. Also reserve requirement ratios for FX deposits were differentiated according to the conversion rate from FX accounts to TL accounts since June 2022. Additional FX requirement ratios are 500 basis points for banks with a conversion rate below 10% (5% between June 2022-September 2022), and 300 basis points for banks with a conversion rate between 10%-20% (5-10% between June 2022-September 2022).
7 As of the calculation date of 28 October 2022 with the maintenance period starting on 11 November 2022.
8 As of maintenance period starting on 11 November 2022, total size of the required reserves is TRY 200 bn and USD 72 bn equivalent of FX and gold.
9 Yearly GDP of Turkey was TRY 12.6 trn at 2022Q3.
10 As of 25 November 2022 total size of the actual reserves is 122.6 billion USD equivalent of FX and gold.
11 Yearly GDP of Turkey was TRY 12.6 trn at 2022Q3.
12 All of TRY denominated required reserves is maintained on average over the maintenance period. Maximum 8% of the FX RR liability base can be maintained on average over the maintenance period.
13 Maximum 5% of the Turkish lira required reserves may be carried over to the next period.
14 The liabilities subject to reserve requirements are calculated as of Fridays every two weeks.
15 There are 14 days lag before maintenance.
16 The liabilities subject to reserve requirements are calculated as of Fridays every two weeks.
17 Remuneration rate applied to Turkish lira-denominated required reserves are set to 0%, as of 15/4/2022.
18 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).
19 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.
20 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
21 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.
22 Daily at 18.30 pm for CBRT website
23 Daily at 18.30 pm for CBRT website