2.2.2. Exchange Rate Policy

The CBRT continued to implement the floating exchange rate regime in 2015. 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.

Starting from 1 February 2015, an annual commission rate of 0.2 percent per annum was applied on balances denominated in Euro in required reserves and notice accounts held with the CBRT. The commission rate charged on these account balances held by banks and finance companies may be reviewed when deemed necessary by taking global and local financial market conditions into account. Starting from 1 July 2015, the annual commission rate applied on balances denominated in Euro in required reserves and notice accounts held with the Central Bank was reduced to 5 basis points due to the recent developments in the Eurozone and was set as 0 starting from 27 July 2015.

Starting from 27 February the amount of foreign exchange selling auctions was set on a daily basis depending on the conditions in the foreign exchange market. On days when deemed necessary due to excessive volatility, the FX selling auction amount may be increased up to 50 percent above the pre-announced minimum amount. On 10 April 2015 the CBRT determined that on days when deemed necessary due to excessive volatility, the FX selling auction amount may be increased by up to USD 30 million above the pre-announced minimum amount and on 19 August 2015 decided that on days when deemed necessary due to excessive volatility, the FX selling auction amount may be increased by up to USD 70 million above the pre-announced minimum amount.

On the other hand, in line with global interest rate developments, the rates applied to banks’ one week maturity borrowings from the Central Bank were reduced:

- starting from 10 March 2015, rates were reduced from 7.5 percent to 4.5 percent for USD and from 6.5 percent to 2.5 percent for EUR,

- starting from 24 April 2015 reduced to 4 percent for USD and to 2 percent for EUR,

- starting from 9 June 2015 due to recent global and local developments, the rates applied to banks’ one week maturity borrowings from the Central Bank were reduced to 3.5 percent for USD and to 1.5 percent for EUR,

- starting from 27 July 2015 the USD deposit rates at one week maturity were reduced to 3 percent, the EUR deposit rate at one week maturity was reduced to 1.25 percent. Also, when deemed necessary, without any need for a press release, these rates for the USD and EUR may be adjusted in either direction at 9:30 a.m. on business days, and will be valid for the same business day.

Starting from 14 August 2015, the USD deposit rate at one week maturity was reduced from 3 percent to 2.75 percent and the EUR rate has not been changed. In order to support the foreign exchange liquidity, the transaction limits of the banks in the CBRT Foreign Exchange and Banknotes Markets have been increased by approximately 130 percent to USD 50 billion (as calculated by current EURUSD parity) from 1 September 2015.

Starting from 5 May 2015, US dollars denominated required reserves, reserve options and free reserves held at the CBRT were remunerated. The remuneration (interest) rate is set on a daily basis by taking global and local financial markets conditions into account. The overnight rate was announced as 0.12 percent per annum starting from 5 May 2015. The interest rate applied to US dollars denominated required reserves, reserve options and free reserves held at the CBRT:

- increased to 0.14 percent per annum, starting from 1 June 2015,

- to 0.15 percent per annum starting from 9 June 2015,

- to 0.21 percent per annum starting from 24 July,

- to 0.23 percent per annum starting from 14 August,

- to 0.24 percent per annum starting from 28 September and

- to 0.49 percent per annum starting from 17 December 2015.

On 28 September 2015, the USD bid rate for the forex deposits as collateral was set as 0.35 percent and the EUR bid rate for the forex deposits as collateral was set as 0.03. Total limits for forex deposits as collateral were set as 3 billion USD and 0.9 billion EUR. Starting from 17 December 2015 the USD bid rate for the forex deposits as collateral increased to 0.65 percent.