Critical intervention in financial markets by Turkey’s Central Bank

The Central Bank (CBRT), stating “unhealthy price developments that are not in line with the economic basics in the markets” have been observed, has changed the upper limit of the foreign exchange and the slice intervals, within the scope of the reserve option mechanism. Moreover, CBRT also fixed rates for rediscount credit repayments of exporters. Following this announcement a decrease of about two KURUS (1/100 TL) in the dollar exchange rate was observed.

Under the reserve option mechanism, the CBRT lowered the upper limit of foreign exchange rates from 60 percent to 55 percent, while dropping all slice intervals down by 5 per cent.

The CBRT mentioned in a written statement that unhealthy price developments not compatible with the economic bases in the recent period had been observed. The statement also said “Considering this situation, the upper limit of the foreign exchange facility and the slice intervals have been changed within the scope of the reserve option mechanism in order to provide price stability and financial stability support”.

 According to the statement, approximately TL 5.3 billion will be withdrawn from the market and 1.4 billion dollars of foreign exchange will be made available for utilization by banks

Additionally, the CBRT also fixed rates for rediscount credit repayments of exporters. By doing so it is supposed to provide convenience in repayment of credits.

An expert said that there is a total of $ 5 billion worth of loans payable until February 2018 and if all facilities are used, a US$ 5 billion foreign exchange demand will be withdrawn from the market.

Before the announcement of the CBRT, the dollar was at 3.8851, the lowest level after the announcement was 3.8724.