Financial Stability and Monetary Policy

Financial Stability and Monetary Policy

Title : Financial Stability and Monetary Policy
Number : 11/08
Author(s) : Erdem Başçı, Hakan Kara
Language : English
Date : May 2011
Abstract : Turkish economy in the aftermath of the global crisis has faced an unprecedented divergence between domestic and external demand. Increasing risks in the face of surging short-term capital inflows, deteriorating current account deficit and rapid credit growth have called for an alternative policy approach. In order to limit the buildup of macro-financial imbalances, the Central Bank of Turkey (CBT) has designed and implemented a new policy mix by utilizing several complementary instruments. This study assesses the new policy strategy designed and implemented by the CBT. First we introduce the main structure of the new policy and explain why 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, a wider interest rate corridor, combined with higher required reserve ratios may serve as an appropriate strategy in dealing with short term capital inflows, especially in countries with current account deficits.
Keywords : Monetary Policy, Financial Stability, Macroprudential Policy
JEL Codes : E44; E52; E58

Financial Stability and Monetary Policy
CENTRAL BANK OF THE REPUBLIC OF TURKEY Head Office Anafartalar Mah. İstiklal Cad. No:10 06050 Ulus Altındağ Ankara Phone : (+90 312) 507 50 00 | Fax : (+90 312) 507 56 40