2.2.2. Exchange Rate Policy

In 2012, the CBRT continued with the floating exchange rate regime alongside inflation targeting. In floating exchange rate regime, exchange rates are not used as a policy instrument, and the CBRT does not have a nominal or real exchange rate target. However, the CBRT may directly intervene in the FX market in case of unhealthy price formations due to loss in the market depth.

In fact, as per the strategies adopted based on the decisions made at the MPC meetings in response to the changing economic circumstances in international markets in the second half of 2011, FX selling auctions were launched on 5 August 2011. Accordingly, the maximum amount to be sold started to be announced as of 12 September 2011. The maximum amount to be sold within two working days started to be announced as of 29 November 2011. Starting from 27 December 2011, the maximum auction amount for two days was limited to USD 1.700 million, the maximum daily amount being USD 1.350 million. Furthermore, it was announced that starting from 30 December 2011, regular auctions would be held even if the market is intervened prior to the regular auction.

Through the auctions, which were suspended on 25 January 2012, USD 11.210 million and USD 1.200 million were sold in 2011 and 2012, respectively.

Moreover, due to the unhealthy price formations in exchange rates, direct selling interventions were made in foreign exchange markets on 30 December 2011, which continued through the first week of 2012. The market was provided with a total liquidity of USD 1.006 million through the interventions made on the 2nd, 3rd and 4th of January. No FX selling intervention was conducted after this date.

In the context of the strategies defined by the MPC, in addition to the regular FX selling auctions, which started on 5 August 2011, intraday FX selling auctions were launched on 6 January 2012. The amount to be sold in each auction was set as USD 50 million and the full amount of bids received were met up to the auction amount. On 6 January 2012 and 9 January 2012, three and two FX selling auctions were held, respectively. A total of USD 250 million was sold through these auctions. No other intraday FX selling auctions were held until the end of 2012. On 24 January 2012, the maximum total amount to be sold via intraday auctions on a daily basis was decided to be limited to USD 500 million until the next MPC meeting.

Meanwhile, within the borrowing limits introduced for banks in foreign exchange deposit markets in the Foreign Exchange and Banknotes Markets, which the Central Bank is a party to, the CBRT reduced the lending rate for transactions, from 5.5 percent to 4.5 percent for the USD and from 6.5 percent to 5.5 percent for the euro to be effective as of 9 August 2011. The CBRT resumed its activities as an intermediary in the market on 10 November 2011, and the maturity of FX deposits were raised from one week to one month on 2 January 2012.

On 25 December 2012, the CBRT lowered the maturities of FX deposits from one month to one week within the borrowing limits introduced for the banks in foreign exchange deposit markets in Foreign Exchange and Banknotes Markets in response to favorable developments in international liquidity conditions and the liquidity in FX markets. Moreover, the lending rate for transactions, which the Central Bank is a party to, was raised to 10 percent, which was previously set as 4.5 percent for the USD and 5.5 percent for the euro, on the same day. The CBRT's activities as an intermediary in the Foreign Exchange Deposit Markets in Foreign Exchange and Banknotes Markets were terminated on 2 January 2013.