DECISION OF THE MONETARY POLICY COMMITTEE
Central bank: tcmb | Type: decision | Date: 2006-06-25

No: 2006-30
25 June 2006
DECISION OF THE MONETARY POLICY COMMITTEE
Meeting Date: 25 June 2006
Committee Members Who Participated in the Meeting
Durmu ş Yılmaz (Governor), Erdem Ba şçı, Burhan Göklemez, Güven Sak, M.
İbrahim Turhan, Mehmet Yörüko ğlu.
(Being abroad, Durmu ş Yılmaz has chaired the meeting via tele-conference system.)
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The Monetary Policy Committee has decided to raise short-term interest rates
(policy rates) at the CBRT Interbank Money Market and the Istanbul Stock Exchange
Repo-Reverse Repo Market as follows :
a) Overnight Interest Rates: The CBRT borrowing interest rate is raised to
17.25 percent from 15 percent, and the CBRT lending interest rate is rai sed to 20.25
percent from 18 percent.
b) Late Liquidity Window Interest Rates: Within the framework of the Late
Liquidity Window Facility, the CBRT overnight borrowing interest rat e applicable
between 4:00 p.m. – 4:30 p.m. at Interbank Money Market is raised to 13.25 percent
from 11 percent. Lending interest rate is raised to 23.25 percent from 21 percent.
c) The interest rates applicable to overnight and one-week maturity borrowing
facilities provided for primary dealer banks via repo transactions w ithin the
framework of open market transactions are raised to 19.25 percent from 17 percent.
The Committee perceives that the volatility in international fina ncial markets,
which has started in May, basically results from the serious shr inkage in demand for
financial assets of developing countries due to portfolio movements trig gered by the
process of monetary tightening and interest hikes in the developed countri es. This
demand shrinkage has exerted pressure on both foreign exchange rates a nd medium
and short-term interest rates in developing countries, especially i n the last three days,
beyond the extent implied by economic fundamentals. Turkey has significa ntly been
influenced by these developments because of the structure of the portfoli o held by
non-residents.
Recent volatility has the potential to affect the expectations a nd the risk
perceptions, and thus the inflation. The Central Bank will not allow this to happen. In
this context, the Central Bank will start deposit-buying auctions in order to reduce the
excess New Turkish Lira liquidity in overnight money market via open market
transactions with the aim of increasing the effectiveness of monetary policy decisions.
Governor Yılmaz has submitted the regulation, which has been drawn up for this
purpose, to the Committee. Moreover, the liquidity conditions in the foreign exchange
markets have been thoroughly assessed and shrinkage in foreign exchange liquidity
was identified. Due to the fact that an effective operating forei gn exchange market is
a precondition for price stability, the Committee has expressed it s full support for the
effective intervention of the Central Bank Head-Office in order to provide foreign
exchange liquidity via its tools and mechanisms.
Furthermore, Monetary Policy Committee has reviewed policy rates and has
decided to further strengthen monetary tightening in order to improve me dium-term
inflationary expectations.
A broader and combined summary of the assessments of the Monetary Pol icy
Committee of 20 June and 25 June will be published on 28 June 2006. Besides,
starting from July, in order to contribute to the accurate comprehensi on of monthly
inflation data, a technical note on inflation developments will be published within two
days following the announcement of price indices. The Inflation Report as sessing the
reflections of recent economic developments on the medium-term inflat ion outlook
will be published on 28 July 2006.