2.2.2. Exchange Rate Policy

The CBRT has continued to implement floating exchange rate regime in 2013. The foreign exchange rate is determined by supply and demand conditions in the market. The CBRT does not have a nominal or real exchange rate target under this regime. Nonetheless, to curb the risks to the financial stability, the CBRT does not remain unresponsive to excessive appreciation or depreciation of Turkish lira.

After May, increased volatility was observed in domestic foreign exchange markets parallel to many other developing countries. To minimize the adverse effects of the excessive volatility on price stability and financial stability, short term additional monetary tightening has been implemented, mainly via open market operations. In addition, the CBRT has announced that unsterilized intraday foreign exchange selling auctions could be held when deemed necessary.

In this context, on 11 June 2013, the CBRT started to hold intraday foreign exchange auctions of USD 50 million when deemed necessary. On 20 June 2013, the Bank decided that the amount that would be sold at each intraday auction would be set and announced individually by the CBRT and the full amount of offers received would be met up to the auction amount.

In line with the Monetary Policy Committee decision held on 18 June 2013, it was announced that only one intraday foreign exchange selling auction would be held on the days on which funding was provided from the policy rate within the limits set by the MPC. In this respect, the minimum auction amount was set as USD 150 million on 24 June 2013. However, the minimum auction amount was decreased to USD 50 million and the maximum bidding amount for each bank was decreased from 20 to 10 percent of the total auction amount on 2 July 2013.

Foreign exchange selling auctions have been terminated on days of additional monetary tightening since 24 July 2013.

The intraday foreign exchange selling auction time was changed to 4.30 p.m. on 1 August 2013. On 21 August 2013 the Bank announced that the additional monetary policy tightening would continue to be implemented every day until further notice and the minimum auction amount would be USD 100 million during additional tightening days.

The Bank announced on 22 August 2013 that the daily minimum sale amount for the FX selling auctions held on each of the remaining additional monetary tightening days at 4.30 p.m. will be announced at 10.30 a.m. Further, the Bank made public that the announced minimum sale amount might be revised upwards only once within the day if deemed necessary and the minimum FX selling amount announced for the latest auction of the additional monetary tightening period would be valid also for the first normal trading day that would succeed the period of additional monetary tightening.

As of 20 September 2013, the intraday foreign exchange selling auction amount has been changed to minimum USD 20 million on regular funding days.

The foreign exchange selling auction amount has been changed to minimum USD 50 million, since 11 December 2013. The Bank announced on 20 December 2013 that the foreign currency sales amount might be raised up to 10 times of the announced minimum amount on days when the exchange rates exhibited excessive volatility.

The Bank announced on 24 December 2013 that the minimum foreign exchange selling auction amount would be USD 450 million every day for the rest of December 2013 and USD 100 million every day in January 2014. Thereby a minimum of USD 6 billion would be provided via foreign exchange selling auctions until the end of January 2014.