Press Release on Turkish Lira Liquidity Management
In order to simplify the operational framework of the monetary policy, starting from 20 November 2020, the funding currently provided by the Central Bank via traditional method repo auctions with one month maturity and late liquidity window facilities will instead be provided via quantity repo auctions with one-week maturity, which constitute the principal monetary policy tool of the Central Bank. Within the scope of liquidity management operations, to limit the volatility that may occur in the secondary market overnight interest rates and to ensure a balanced distribution of liquidity among different days of the week, for a one-week transition period, the overnight lending interest rate will be set as the policy rate of 15% from 20 November 2020 to 26 November 2020 (including these dates).
During this transition period and afterwards, banks will be able to borrow at the Central Bank overnight lending interest rate from the Central Bank Interbank Money Market within their limits applicable on 17 August 2020 and from Borsa Istanbul’s Repo and Reverse Repo Market and Committed Transactions Market. Also, in case of liquidity surplus, banks will be able to lend to the Central Bank at the Central Bank overnight borrowing interest rate without any limit. In addition, all participants will be able to utilize the overnight repo facility provided through quotation at the Central Bank overnight lending interest rate against TL denominated lease certificates issued by the Asset Leasing Company of the Turkish Treasury.
The Central Bank announced the main lines of simplification after the MPC announcement that it increased the policy rate by 475 basis points. After the policy announcement stating that the entire TRY funding will be directed to a 1-week repo rate, in the liquidity management announcement published on the website, the Central Bank previously announced that the funding provided by traditional repo auctions and LLW borrowing will be made through 1-week repo auctions. In addition, a 1-week repo rate of 15% will be applied as the overnight lending rate from tomorrow until November 26. Prior to this, funding directed to different bands with the use of interest corridor and LLW will occur around a single rate and the volatility in market interest rates will decrease.
The Central Bank's simplification of TRY funding is a more important move than today's rate hike in terms of eliminating the complexity of the funding composition and understanding the level of the current interest rate in the market.
