2.2.2. Exchange Rate Policy

The CBRT continued to implement the floating exchange rate regime in 2014. 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 financial stability, the CBRT does not remain unresponsive to excessive appreciation or depreciation of Turkish lira.

On 23 January 2014, as a result of unhealthy price formations, the CBRT directly intervened in the FX markets by selling FX.

Taking into account the ongoing improvement in the current account deficit, the daily foreign exchange selling auction amount was decreased from “minimum USD 50 million” to “minimum USD 40 million” from 28 April 2014 onward. The daily foreign exchange selling auction amount was decreased from “minimum USD 40 million” to “minimum USD 20 million” effective from 9 May 2014 onward, and decreased from “minimum USD 20 million” to “minimum USD 10 million” effective from 25 July 2014 onward.

Effective from 29 September 2014 onward, due to heightened volatility observed in the exchange rates, the daily foreign exchange selling auction amount was increased from “minimum USD 10 million” to “minimum USD 40 million”.

Effective from October 9, 2014, the rates applied to banks’ one week maturity borrowings from the Central Bank as a last resort facility have been reduced from 10 percent to 7.5 percent for USD and from 10 percent to 6.5 percent for the EUR.

Effective from 1 December 2014 onward, taking the expected improvements in the balance of payments into account, the foreign exchange selling auction amount was decreased from “minimum USD 40 million” to “minimum USD 20 million”.

Effective from 9 December 2014 onward, due to heightened volatility observed in the exchange rates, the daily foreign exchange selling auction amount was increased from “minimum USD 20 million” to “minimum USD 40 million”.

Starting from 17 December 2014, the foreign exchange needs of the energy importing state owned enterprises will be met directly by the CBRT and the Undersecretariat of the Treasury, as appropriate.