Financial Stability and Monetary Policy
Rapid credit growth, short-term capital inflows, and associated macro-financial risks in the aftermath of the global crisis necessitated the use of alternative policy instruments in Turkey. Accordingly, the Central Bank of the Republic of Turkey (CBRT) has designed and adopted a new policy mix to incorporate financial stability into the inflation targeting framework by utilizing several complementary instruments. This study assesses the new policy strategy implemented by the CBRT. First we introduce the main structure of the new policy and explain how and for what purpose each instrument is used. We then elaborate on the communication strategy and assess the initial impact of the implementation. Although it is too early to draw firm conclusions, initial results so far suggest that a policy mix of lower policy rate, wider interest rate corridor, combined with higher reserve requirement ratios may serve as an appropriate strategy in dealing with short term capital inflows, especially in countries with current account deficits.
|Date of creation:||2011|
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