Recent developments have led to a rapid depreciation of the Turkish Lira against foreign currencies. The USD/TRY soared to 40.53, only to stabilize around the 38 mark. In response to increasing volatility today, the Central Bank of the Republic of Turkey (TCMB) announced interim measures.
TCMB Interest Rate Decision
The TCMB raised the overnight lending rate, causing fluctuations in exchange rates. The Lira experienced volatility, with the rate against the dollar dropping to approximately 37.5 TL. However, as this report was being prepared, a rebound towards the 38 dollar threshold was observed.
“Yaşar Fatih Karahan (Chairman), Osman Cevdet Akçay, Elif Haykır Hobikoğlu, Hatice Karahan, Fatma Özkul. The Monetary Policy Committee convened to assess developments in financial markets. Potential risks to the inflation outlook were evaluated, leading to measures that support a tight monetary stance. Accordingly, the committee decided to raise the overnight lending rate to 46%. The one-week repo auction rate remains at 42.5%, while the overnight borrowing rate is kept at 41%. Additionally, measures have been taken to limit volatility in TL and foreign currency liquidity. Further actions will be considered if necessary to maintain the effective functioning of financial markets.” – TCMB Monetary Policy Committee Interim Meeting Decision
Information
Policy Rate (One-Week Repo Rate): This is the main interest rate used by the TCMB for lending to banks. When it decreases, loan interest rates drop, leading to increased borrowing and economic activity.
Overnight Lending Rate (Marginal Funding Rate): This rate is usually higher than the policy rate. Banks sometimes urgently need liquidity, and if they cannot find it elsewhere, they borrow from the Central Bank at this overnight rate.
Overnight Borrowing Rate (Interest Rate on Funds Collected by TCMB): This is the overnight interest banks receive when depositing excess funds at the TCMB, generally lower than the policy rate.
Late Liquidity Window (GLP) Rate: If banks cannot borrow during normal hours and need funds to close the day, they can borrow from the Central Bank as a last resort, typically at the highest interest rate.
