2.2.2. Exchange Rate Policy

The CBRT continued to implement the floating exchange rate regime in 2016. Thus, the FX 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 the Turkish lira.

In the January-April period of 2016, through auctions a total of USD 3.4 billion was sold, and no FX was sold after 28 April 2016.

On 7 January 2016, total limits for FX deposits as collateral were increased from USD 3 billion to USD 3.6 billion and from EUR 0.9 billion to EUR 1.8 billion. On 12 May 2016, the maturity of FX deposits was diversified to include 2-week maturity in addition to 1-month maturity with the same interest rates. On 8 June 2016, total limits for FX deposits as collateral were increased to USD 5 billion and starting from 18 July 2016 banks were allowed to place FX deposits as collateral without limits. On 11 November 2016, the limits were rearranged and set as USD 20 billion and EUR 7.2 billion.

On 26 December 2016, the USD bid rate for the FX deposits as collateral was increased from 0.65 percent to 0.75 percent and the EUR bid rate for the forex deposits as collateral was reduced from 0.03 percent to zero. On the same day, the interest rate applied to US dollar denominated required reserves, reserve options and free reserves held at the CBRT was increased from 0.49 percent to 0.75 percent.

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