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 The Monetary Policy Committee (MPC) is the main decision-making body for conducting monetary policy. It has seven members, consisting of the Governor, four Vice Governors, a member to be elected by and from among the Board members and a member (usually an external academic) to be appointed on the recommendation of the Governor. 1
Major mandates 2 The primary objective of the Bank is to maintain price stability. The Bank, provided that it shall not conflict with the objective of maintaining price stability, supports the growth and employment policies of the Government. The Bank determines the inflation target together with the Government and, in compliance with this, adopts the monetary policy. The Bank is exclusively authorized and responsible in the implementation of the monetary policy. One of the fundamental duties of the Bank is, among others, to take precautions for enhancing the stability in the financial system and to take regulatory measures with respect to money and foreign exchange markets. 3
Decision-making process The Central Bank of Turkey adopts inflation targeting. To this end, the MPC evaluates policy analyses and forecasts presented by the relevant departments of the Bank one or two days before the main MPC meeting. The Deputy Minister of Treasury and Finance or a unit chief to be designated by the Minister may also participate to these meetings in a non-voting capacity.
Frequency / length of meetings Currently, the MPC meets monthly on a pre-announced schedule. 4
Frequency of announcements The decision is announced on the same day of the meeting, and the summary of the MPC meeting is published within 5 business days.
Main policy target The annual (year-on-year) consumer inflation is the main policy target of monetary policy.

Overview of key features

Key policy rate % 17
maturity (days) 1 Week
Operating target
maturity (days)
Standing facilities Lending rate, deposit rate
Corridor width (bp) 300 bp
Reserve requirements 14 days
maintenance period
Main operation 5 RP
functions Providing liquidity to the system.
maturity (days) Providing liquidity to the system.
regular interval Providing liquidity to the system.
frequency Providing liquidity to the system.
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 There is usually no "explicit" use of forward guidance in the monetary policy decision announcements. They sometimes include a statement underlining the MPC's commitment to tight monetary policy until certain conditions are observed, which may be considered as a form of "weak" or "vague" forward guidance. For example, the following sentence is taken from the November 2020 MPC decision: "In the periods ahead [...] the tightness of monetary policy will be decisively sustained until a permanent fall in inflation is achieved.
Timing / media of policy announcement Each month, the policy decision is announced on the day of the MPC meeting at 14.00 by a press release on the website.
Policy announcement and documents Policy announcement usually consists of a one- or two-page document.
Explaining policy decisions Policy announcement document provides a brief rationale of the decision in terms of the outlook for inflation and activity, as well as external developments.
Dissemination of minutes (timing / media) Each month, the summary of the MPC meeting is published by a press release on the website within five business days of the decision.
Content of minutes The Summary of the MPC Meeting document provides a relatively detailed summary of the inflation outlook, factors affecting inflation, as well as monetary policy response, associated risks and possible responses to the realisation of such risks. Depending on the issues discussed at the meeting, the Summary of the Meeting document may range between 3-5 pages.
Publication of forecasts 6 Medium-term forecasts (with uncertainty bands) for headline consumer inflation and a measure of core inflation (consumer inflation excluding unprocessed food, energy, alcoholic beverages, tobacco products and gold), as well as output gap forecasts are published in quarterly Inflation Reports. No official forecast is given in the MPC decision or the summary of the meeting documents. On the months of Inflation Report, the Committee may choose to refer to the forecasts depending on economic conditions or the interval between the MPC meeting and the publication of the Inflation Report. The MPC sometimes signals its very near-term (next month's) inflation forecast should the public expectation is significantly different from the Central Bank's forecast, in order to rule out possible excessive reaction to an inflation surprise. The decision and meeting summary documents, at times, may include a future "direction" of certain variables such as the current account or GDP.
Publication of projected path of policy rate 7 The Central Bank of Turkey does not publish the projected path of policy rate consistent with the published inflation and output gap forecasts.

Reserve requirements: ratios and size

Main functions served Liquidity management and macro-prudential purposes
Domestic currency Yes (1-6%) 8
Foreign currency Yes (5-22%) 9
Average 5.7% for TRY denominated liabilities
17.2% for foreign currency denominated liabilities 10
Required reserves TRY 573.5 bn 11
Required reserve as % of GDP 12.1% 12
Actual reserves TRY 714.6 bn 13
Actual reserve as % of GDP 15.1% 14

Main features of reserve requirements

Averaging Yes 15
Carry-over Yes 16
Type Lagged
Maintenance period 14 days
end (day) Fridays every two weeks 17
Calculation period 14 days
end (day) Fridays every two weeks 18
Lag before maintenance 14 days 19
Vault cash No
restrictions
Remuneration Yes
average rate
marginal rate
Framework last changed 27 November 2020 20

Liquidity position and forecasting

Structural Position Liquidity Deficit
Most volatile factor(s) Autonomous Factors, Treasury's transactions and Banknotes in Circulation, banks's free reserves
Most unpredictable factor(s)
Forecast horizon(s) 14-18 days ahead
Frequency Daily
Frequency of revision Daily
Forecast published? Forecast is not publicly available

Standing facilities: lending / market ceiling

Name Standing lending facility
Form Repo, collateralized loan
Pricing method 1 week repo rate + 150bps
Maturity O/N
Access limited by/to Limited to banks authorised to conduct transactions at the Turkish Lira Market of CBRT/ If conducted at Borsa Istanbul Repo Reverse Repo Market, banks and brokerage houses
Function(s) Limit intraday interest rate volatility

Standing facilities: deposit / market floor

Name Standing deposit facility
Form Deposit
Pricing method 1 week repo rate - 150bps
Maturity O/N
Access limited by/to Limited to banks authorised to conduct transactions at the Turkish Lira Market of CBRT/If conducted at Borsa Istanbul Repo Reverse Repo Market, banks and brokerage houses
Function(s) Limit intraday interest rate volatility

Open market operations: repo or reverse repo

Name/Type 21 RP, RS
Maturity Weekly, 1 Day
Frequency Daily
Pricing method Weekly repo, O/N Quotation
Access limited by/to Limited to banks authorised to conduct transactions at the Turkish Lira Market of CBRT/ If conducted at Borsa Istanbul Repo Reverse Repo Market, banks and brokerage houses
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, 1M, 3M, 6M, 1Y 22
Frequency 1W: Every business days
Others: no definite frequency, when deemed necessary
Pricing method 1W: Quotation method
1M, 3M, 6M: Conventional (multi-price) auction method
6M, 1Y: Quantity (fixed 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 flexibility in their liquidity and maturity management.

Other significant liquidity management means

Name/Type 23 Lender of last resort transactions-Late Liquidity Window(LLW)
Form LLW deposit lending/borrowing, LLW repo
Frequency Daily
Maturity O/N
Pricing Method 0 (borrowing), The CBRT O/N lending rate + 300bps
Access limited by/to Limited to banks authorised to conduct transactions at the Turkish Lira Market of CBRT
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 liquidity facility
Charge 0
Foreign currency settlement system N/A
CLS participation by banks
Other settlement system(s) EFT, ESTS

Collateral

Standing facilities: List of eligible collateral - Government bonds and lease certificates issued in domestic market by ALCTT (Asset Leasing Company of Turkish Treasury)
- IILM Sukuk
- Turkish sovereign Eurobonds
- Lease certificates issued by ALCTT
- Foreign bonds and notes
- FX deposits
- FX banknotes deposits
- Gold deposits
- The CBRT liquidity bills (currently outstanding amount is zero)
- Asset backed securities / Mortgage backed securities / Covered bonds issued by resident banks with credit score at least BBB- or equivalent. 24
Standing facilities: Discretion of central bank on collateral 25 The CBRT decides the types and other specific conditions regarding assets accepted as collateral
Open market operations: List of eligible collateral - Government bonds and lease certificates issued in domestic market by ALCTT (Asset Leasing Company of Turkish Treasury)
- IILM Sukuk
- Turkish sovereign Eurobonds
- Lease certificates issued by ALCTT
- Foreign bonds and notes
- FX deposits
- FX banknotes deposits
- Gold deposits
- The CBRT liquidity bills (currently outstanding amount is zero)
- Asset backed securities / Mortgage backed securities / Covered bonds issued by resident banks with credit score at least BBB- or equivalent. 26
Open market operations: Discretion of central bank on collateral 27 The CBRT decides the types and other specific conditions regarding assets accepted as collateral

Dissemination of operational information: liquidity forecast

Forecast published? The liquidity forecast is not disseminated. But the banks' free reserves and accurate liquidity position for the current day and two consequent days' liquidity position forecasts are revelaed through data dissemination channels at 10:00 a.m.
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 Reuters, Bloomberg, Forex and Anadolu Agency. Besides it is published on 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) Reuters, Bloomberg, Forex, CBRT website
Lending facility usage: Timing Daily at around 4 pm 28
Deposit facility usage: Channel(s) Reuters, Bloomberg, Forex, CBRT website
Deposit facility usage: Timing Daily at around 4 pm 29

Other information dissemination

Type LLW
Channel(s) Reuters, Bloomberg, Forex, CBRT website
Timing Daily at 18 pm

1 The Central Bank Law Article 22/A: "The Monetary Policy Committee shall have the following duties and powers: a) to determine the principles and strategy of monetary policy in order to maintain price stability, b) to determine the inflation target together with the Government within the framework of the monetary policy strategy, c) to provide information to the public in line with the principles that it shall set forth, and provide information to the Government within specified periods by preparing reports regarding monetary policy targets and its implementations, d) to take necessary measures in order to protect the domestic and international value of the Turkish lira and to establish the exchange rate regime to determine the parity of the Turkish lira against gold and foreign currencies jointly with the Government."

2 Describe as well the legal status of the mandate and involvement of government

3 The mandates and duties of the Bank are taken from the Central Bank Law.

4 The Central Bank Law stipulates that the Monetary Policy Committee meetings shall be held at least eight times a year upon the call of the Governor.

5 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).

6 For instance, economic and inflation forecasts related to policy decision.

7 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.

8 Reserve requirement ratios of the Turkish lira denominated liabilities are differentiated by liability types and maturities.

9 Reserve requirement ratios of the foreign currency denominated liabilities are differentiated by liability types and maturities.

10 As of the calculation date of 11 December 2020 with the maintenance period starting on 25 December 2020

11 As of 25 December 2020
Total size of the required reserves is TRY 40 bn and USD 68 bn equivalent of FX and gold.

12 Yearly GDP of Turkey was TRY 4.7 trn at 2020Q3.

13 As of 25 December 2020
Total size of the actual reserves is 94.6 billion USD equivalent of FX and gold.

14 Yearly GDP of Turkey was TRY 4.7 trn at 2020Q3.

15 All of TRY denominated required reserves is maintained on average over the maintenance period.
Maximum 8% of the FX liabilities (in other words, 8% out of 17.2%, which is average reserve requirement ratio for FX liabilities) can be maintained on average over the maintenance period.

16 Maximum 5% of the Turkish lira required reserves may be carried over to the next period.

17 The maintenance of required reserves begins on the Friday after two weeks following the date of the liability calculation.

18 The liabilities subject to reserve requirements are calculated as of Fridays every two weeks.

19 There are 14 days lag before maintenance.

20 https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Announcements/Press+Releases/2020/ANO2020-71

21 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).

22 In order to contain adverse effects of the global uncertainty led by the coronavirus (COVID-19) pandemic on the Turkish economy, banks were offered targeted additional liquidity facilities to secure uninterrupted credit flow to the corporate sector. In this context, Turkish lira currency swap auctions were conducted with a maturity of 6M & 1Y.

23 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.

24 (i) Foreign exchange and Foreign exchange banknote deposits accepted as euro and USD Dollar

25 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.

26 (i) Foreign exchange and Foreign exchange banknote deposits accepted as euro and USD Dollar

27 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.

28 Daily at 18.30 pm for CBRT website

29 Daily at 18.30 pm for CBRT website