2.2.1. Turkish Lira Liquidity Management

Within 2016, the funding of the system remained broadly unchanged from 2015. Through the year, the CBRT provided the substantial portion of the liquidity from the marginal funding rate. To increase the effectiveness and predictability of the Turkish lira liquidity management, the CBRT decided to target a balanced distribution of weekly term funding stock to the days of the week when determining the daily auction amount of one-week repo funding provided by the quantity auction method as of 3 June 2016. Furthermore, at the end of June the CBRT raised the size of open market operations portfolio from nominal TL 9 billion to TL 14 billion and the outright purchase auctions were conducted until the end of 2016.

The technical work for simpler and more transparent collateral conditions in TL transactions at the CBRT continued in 2016. Within this framework banks’ collateral FX deposit limits increased gradually. As of 16 May 2016, in addition to one-month tenor, the banks were granted the option of holding FX deposits as collateral with two-week tenor. On 17 July 2016 as a measure to maintain the smooth functioning of financial markets, the banks were allowed to place limitless FX deposits as collateral for needed Turkish lira liquidity. On 11 November 2016, the CBRT set the limit on collateral FX deposits as four times higher than the limits allocated before 17 July 2016. These limits were USD 20 billion and EUR 7.2 billion as of year-end. The collateral FX deposit facility served as an alternative to currency swap transactions and somewhat lowered banks’ need for swap deals with the market. As an alternative to currency swap transactions, the collateral FX deposit facility helped to limit the divergence between the rate of overnight currency swap transactions and Borsa İstanbul (BIST) overnight rates caused by heightened hedging costs during times of financial stress.

Accordingly, the CBRT’s collateral FX deposit facility allowed short-term exchange rate swap transactions to be substituted through the CBRT, and hence contributed to the liquidity management of banks and a more effective monetary transmission mechanism.

In order to support the efficient liquidity management of banks, the haircut rates of Turkish lira and foreign currency denominated collaterals pledged against Turkish lira transactions were simplified according to their types and maturities.

With another regulation related to the collateral conditions, the maximum ratio of 50 percent that banks were able to pledge as FX denominated collateral against their borrowings at the CBRT Interbank Money Market was raised to 70 percent as of 13 January 2016. This regulation aimed to support the demand for FX-denominated bonds issued abroad by the Treasury.

The Intraday Liquidity Facility commission rate for banks at the CBRT Interbank Money Market was lowered from 48 to 10 per million effective from 2 May 2016, and the commission rate has been applied at 0 per million since 17 July 2016 as a measure to maintain the smooth functioning of financial markets, and the needed liquidity is provided to the banks without limits via Turkish lira deposits.

Starting from 3 August 2016, the CBRT introduced the Late Liquidity Window repo facility (LON repo) provided from the LON lending rate, to enhance the diversification of the toolset in banks’ access to TL liquidity.

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