The biannual presentations made by the Governor before the Council of Ministers and the Planning and Budget Commission of the Grand National Assembly of Turkey – to provide information about the activities and monetary policy implementations of the Bank –; monthly “Price Developments” reports issued on the next working day of the release of the inflation figures; “Financial Stability Report” issued biannually; press releases; and presentations and speeches made by the Central Bank authorities in Turkey and abroad will play important role in informing the public.1 Working papers, booklets, technical notes published and conferences and workshops arranged by the Bank will also continue to be used as effective tools of the communication policy. Exchange rate policy and liquidity management Exchange rate policy Along with inflation targeting, the Central Bank will continue to implement the floating exchange rate regime in 2009. As stated in the annual monetary and exchange rate policy announcements, which have been published since 2002, the foreign exchange rate is not a policy tool or target under this regime and it is determined by the supply and demand conditions in the market. Whereas the main factors affecting foreign exchange supply and demand are the monetary and fiscal policies implemented, international developments, economic fundamentals and expectations. Although there is no exchange rate level to be maintained in a floating exchange rate regime, a strong foreign exchange reserve position is very important for emerging economies like Turkey to eliminate the unfavorable effects of potential internal and external shocks and to boost the confidence in the country.

In case of a recovery in the liquidity conditions due to developments in the international markets; (i)  The Central Bank may, with prior notice, resume foreign exchange buying auctions in line with the general strategy of strengthening foreign exchange reserves at times when foreign exchange supply increases compared to the foreign exchange demand. (ii)  The Central Bank might cease to perform its intermediary function in the Foreign Exchange Deposit Market. However, even in such a case, banks will still be able to borrow foreign exchange deposits from the Foreign Exchange Deposit Markets within the predetermined borrowing limits. (iii)  The FX required reserves ratio might be increased. In view of the fact that financial stability is one of the prerequisites for price stability, the Central Bank took the necessary measures in order to ensure the efficient operation of Turkey’s foreign exchange market without facing any liquidity problems. The Central Bank also announced possible additional measures. Nevertheless, bearing in mind that under the current exchange rate regime economic agents operate in an environment of exchange rate risk, they should establish mechanisms that will ensure efficient risk management. Liquidity management While drawing up the general framework of liquidity management, the Central Bank took into consideration following objectives; (i) ensuring that short-term interest rates would remain at or revolve around the level set by the Committee, (ii) ensuring the efficient and stable operation of money markets by preventing excessive volatilities in short-term interest rates of the money market, (iii) ensuring smooth functioning of the payments system.