DISINFLATION
PROGRAM FOR THE YEAR 2000:
IMPLEMENTATION
OF EXCHANGE RATE AND MONETARY POLICY
GAZÝ ERÇEL
9 DECEMBER
1999
THE CENTRAL
BANK OF THE REPUBLIC OF TURKEY
In this press
conference, I would like to explain the Stand-By Agreement,
which can be qualified as an extension of the Staff Monitored Program signed
with the International Monetary Fund in July 1998, in the context of the
monetary and exchange rate policy.
1.As
you will recall, we have passed several hard tests in the international
and national arena since July 1998, and have gained enormous experience
in the area of budgetary, monetary and structural reforms as required under
the Staff Monitored Program signed with the International Monetary Fund.
2.In
our negotiations with the International Monetary Fund in June, the ongoing
Staff Monitored Program was envisaged to be a bridge towards a program-tied,
fiscally supported Stand-By Agreement. The macroeconomic policies for 2000-2002
period, which were framed and studied therein, are finalized.
3.The
fundamental goals of this agreement, which is to last for three years are:
· To bring down the consumer price inflation to 25 percent by the end of 2000, 12 percent by the end of 2001, and 7 percent by the end of 2002, via simultaneous implementation of consistent, powerful, credible, and persistent fiscal, income, monetary, and exchange rate policies, all supported by relevant structural reforms,
·To
reduce real interest rates to plausible levels,
·To
increase the growth potential of the economy,
·To
provide a more effective and fair allocation of the resources in the economy.
4.As
we all know, high-inflation phenomenon is the foremost problem of our economy
that has remained unresolved for 25 years. Hence, in the very beginning
of my speech, I want to touch on some unfavorable effects of the inflation
that are closely observed by our whole nation.
5.The
primary effect of the inflation on the economy is the unstable economic
growth dynamic (Graph 1). If we examine the real growth rates since 1977,
we can see that the periods characterized by three subsequent years of
high growth rates are very rare, so that years of recovery are immediately
followed by years of depression. This unstable growth environment brought
about by the inflation impedes the efficient utilization of the resources
in the economy.
6.The
unfavorable effects of the inflation-driven uncertainty environment on
both domestic and foreign investments to our country also reduced the potential
economic growth rate of the Turkish economy. Many countries that
were less developed than Turkey at the end of the 1960s, have got ahead
of our country by attaining higher economic growth rates thanks to low
inflation
7.Erosion of the
credibility of our national currency through volatile and chronic inflation has
also led to high real interest rates
(Graph 2). This, in turn, not only negatively affected the economic
growth by reducing the investment demand, but also switched the capital away
from economic activity oriented towards production, pursuing speculative profit
in financial activities. This situation hinders to a great extent the
availability of new employment facilities in our country, which is characterized
by young population, and the improvement of efficiency of labor as well.
8.On
the other hand, high real interest rates caused primarily by uncontrolled
public deficits have further deteriorated the fiscal position of the public
sector. This vicious circle not only increased the total debt of the public
sector rapidly, but also complicated the sustainability of the fiscal balance
over time (Graph 3).
9.It
is misleading to define inflation solely as an economic problem. Such a
persistent inflation is also an important social problem when the adverse
effects on income distribution are taken into consideration. Inflation
has a negative impact on a large part of the society. Lack of productive
investments leads people to work in low-income and marginal jobs, which
further deteriorate the income distribution.
10.At
this point, we should all come to terms with the reality that it is now
impossible to live with inflation any longer.
11.There
are no further possibilities to solve budget deficit problem by creating
inflation. It widens budget deficits by raising the interest rates. The
public sector, which gained most from inflation in the past, has now turned
into the most suffering sector.
12.We should understand that in a one-digit inflation economy,
both public and private sectors would operate more effectively and the members
of the society would benefit evenly from the consequent increased productivity.
13.On
the threshold of a new Millennium, we all should accept that we must absolutely
bring the inflation down in order to have a place among the developed countries
and that the international confidence can only be achieved by low inflation.
HIGHLIGHTS
OF THE PROGRAM
14. At this stage of my speech, let me share with you the main
points of the program that aim at breaking the habit of getting along with
inflation which has existed for 25 years:
15.The
disinflation program will operate on three main pillars:
a)The
first pillar is a tight fiscal policy that consists of increasing the primary
surplus, realizing the structural reforms and speeding up the privatization.
b)An
income policy in line with the targetted inflation is the second pillar.
c)Monetary and exchange rate policy actions constitute the
third pillar which aim to support the contribution of the first two in
decreasing both inflation and interest rates, and to provide a long-term
perspective to the economic agents.
16.There is no doubt that an inflationary period of 25 years
brings about considerable rigidities in the economy. In order to eliminate
these rigidities, it is not sufficient to have only a powerful program. There
should also be a determined political support throughout the program period. I
am pleased to state that the program enjoys a strong political support. This is
exactly the most important factor for a successfully implementation of the
program.
17.Taking measures in order to eliminate high public sector
deficit quickly and permanently forms the
basis of the program. Increasing revenues by tax implementations and at
the same time tightening expenditures are supposed to make improvements in the
budgetary performance in the year 2000. Moreover, continuation of structural
reforms in 2000 put into force one by one in the preceding months is believed
to contribute to a permanent improvement in the public finance.
18.In
addition to tight fiscal policies and structural reforms, privatization
in the year 2000 will also contribute to decrease real interest rates and
domestic debt stock.
19.It
is expected that total public sector primary surplus will be 2.2 percent of GNP as a consequence of the 2000 fiscal policies. This implies that the primary surplus of the
consolidated budget, including the earthquake expenditures will be 3.9
percent of GNP.When earthquake expenditures are excluded, the ratio will
be 5 percent of GNP. Initially, this is considered as an important and
a sufficient amount. As a result of this practice, it will be possible
to stabilize the ratio of cash domestic debt to GNP at 27 percent and total
debt stock to GNP at 61 percent.
20.There will be similar announcements by the authorities on
fiscal and incomes policy implementations, the related targets and detailed
explanations concerning these policies.
21.At
this point, I would like to present a detailed information on the monetary
policy and liquidity management, which are in our Bank’s responsibility,
as the monetary authority.
22.First
of all, I would like to explain the exchange rate policy to be implemented
in the following years and its effect on inflationary process.
EXCHANGE RATE POLICY
23.Main
features of the Central Bank’s exchange rate policy are as follows:
·The
exchange rate basket will be announced on a daily basis covering one-year
period.
·The
exchange rate basket composed of 1 US dollar + 0.77 EURO will continue
to be valid.
24.The
exchange rate basket has consisted of 1 US Dollar + 0,77 EURO till now.
This basket will be valid during this program.
25.Before
explaining the depreciation rate of basket, as all of you may be anxious
to learn it, I want to mention through which channels the exchange rate
policy will affect the economic process.
26.During economic history, one of the important component of
the programs, which were implemented for fighting high and rigid inflation in
many developing countries was to preannounce exchange rate for the future.
Preannounced exchange rates affect economic framework through many channels.
These channels can be summarized as follows:
27.The
point behind reducing inflation with minimum cost is to decrease inflationary
expectations.
28.The
crucial problem of countries, experiencing high and chronic inflation,
is the determination of future inflation by past inflation. Any backward
indexed contract (like wage, rent etc.) for protecting from inflation has
created a down-ward rigidity. This situation, which called as
inertia, is closely related to credibility of implementation of the program.
29.
In this framework, to decrease inflation with a minimum cost, the behavior
of backward-looking indexation must be given up. Preannounced exchange
rate will give a great support to this. The persistency of backward looking
indexation for price and wage determination will lead to the contraction
of production and employment. The success of the program depends on the
credibility, continuity and acceptance of the program by the different
groups of the society.
30.
There will be positive impacts of decreasing the uncertainty in the exchange
rates system throughout medium to long term both in goods markets and financial markets.
31.Preannounced exchange rate basket and foreign inflation will
determine the price of the tradable goods. In this circumstance, the firms in
private manufacturing sector (consists of 55 percent of WPI) that produce
mostly tradable goods will recognize immediately starting a period of
increasing competition. These firms should take into consideration the targeted
inflation in their price and wage settings.
32.The
high shares of non-tradable good and services in CPI and the backward indexation
mechanism in the price setting of these sectors have emphasized the confidence
in the program once more.
33.The
expected improvement in the financial structures of the public institutions
with the program will allow these institutions to make price adjustments
in line with the exchange rate path and this will eliminate the pressure
on inflation that comes from the public sector. Therefore, with the public
sector that makes price adjustments compatible with the targeted inflation,
reaching the performance criteria’s that are valid for the whole public
sector will be one of the most important factors for the success of the
disinflation program.
34.The pre-announcement of the exchange rates is closely linked
with the financial markets. With the trade liberalization in 1980 and later the
liberalization of the capital movements in 1989, the integration process of the
Turkish economy with the world capital and goods market became complete (Graph
4). Theoretically, in an economy with liberalized financial markets, the
factors that determine the domestic interest rates are the foreign interest rates,
the expected rate of increase in the exchange rates and the risk premium. On
the other hand, the high level of public sector borrowing requirement,
volatility in the inflation rate, exchange rate risk, political risks and the
other institutional factors result in the higher level of risk premium on the
domestic interest rates. As a result of the improvement in the public sector
borrowing requirement and the shift in the exchange rate policy from the
“managed float” to a “pre-announced basket determined according to the targeted
inflation” will lead to the elimination of the substantial amount of the risk
premium on interest rates. Therefore, we expect that the nominal interest rates
will decrease to a level that is compatible with the exchange rate path.
35.
The elimination of the risk premium resulting from the exchange rate uncertainties
will certainly increase the volume of the capital inflows. The capital
inflows will lead to the fall in the interest rates and assist for the financial deepening
by increasing the real credit stock in the economy. The rise in the availability
of financial resources for the private sector firms as a result of the
financial deepening and low interest rates will affect the inflation rate
positively as a result of the lower production costs.
36.Another
important effect of the capital inflows will be observed on the economic
growth. The fall in the interest rates and the higher volume of funds in
the economy will affect the economic growth positively. However, it will
be closely linked to securing the long-term capital inflows, if the negative
effects of business cycles on the growth rate of the economy, which stem
from the capital inflows and outflows, are to be avoided.
37.Therefore,
the acceptance of the program by whole society, believing that it is a
long-term program, will in turn lead to stable and sustainable economic
growth. It is clear that the stable and sustainable growth will contribute
to the lower unemployment rates.
38.Having
stated the effects of the predetermined exchange rates on the inflation
and the growth, I want to carry on with the implementation of the exchange
rates policy.
39.In
the last years, the exchange rate policy in practice has been shaped according
to the variables such as short-term inflationary expectations, the balance
of payments and the public balance. From now on, the exchange rate policy
of the Central Bank of the Republic of Turkey (CBRT) will be implemented according
to the targeted inflation rate.
40.I want to state that during the implementation of the
program the exchange rate policy will be designed in two different exchange
rate regimes and in two different periods. In the first 18 months which is
between January 2000 and June 2001, nominal value of the basket will be increased
according to the targeted inflation rate and in the following period the
exchange rate policy will be carried out with respect to a “progressively
widening band.”
41.In
the first 12 months between January 2000 and December 2000, CBRT will conduct
an exchange rate policy that is compatible with the target of 20 percent
WPI inflation rate for the end of year. In other words, we are committing that
the rate of increase in the exchange rate basket in year 2000 will be 20
percent (Graph 5).
42.In
the first 18 months between January 2000 and June 2001, at the end of every
three months CBRT will announce the rate of increase in the exchange rate
basket that will be compatible with the targeted inflation rate for the
additional three months period while keeping the pre-announced rates for
the previous 9 months unchanged (Diagram 1). Accordingly, at the end of
every 3-months period, the rate of increase in the exchange rate basket
for the following 12 months will be publicly known.
DIAGRAM 1
43.“The
Path of the basket” that will be implemented throughout the next year is
as follows (Table 1):
TABLE
1
RATE OF INCREASE
OF THE FX BASKET
CONSISTING OF 1 US DOLLAR + 0.77 EURO
NOTE:
BASKET=USD+0.77*EURO
BASKET=USD+(0.77*USD*CURRENT
CROSS PARITY)
BASKET=USD*(1+0.77*CURRENT
CROSS PARITY)
USD=BASKET/(1+0.77*CURRENT
CROSS PARITY)
EURO=USD*CURRENT CROSS
PARITY
44.Besides,
it has been decided to present you the daily values of the basket as a table
for the purpose of removing the uncertainty and sustaining a yearly perspective
to all the agents of the economy. The "TABLE" that contains the values of
exchange rate basket is presented in Appendix 2.
45.The
period covering the second 18-month, i.e. in the period July 2001-January 2002,
a progressively widening symmetrical “band” system will be introduced. Total
width of the band in question will be increased gradually. In this framework
the total width of the “band” will be
gradually widened to 7.5 per cent by end-2001, 15 per cent by July 1, 2002,
22.5 per cent by end-2002. In this mechanism, the central bank will not
intervene to the movements of exchange rate within the “band” (Graphic 6).
46.As can be deduced,
as a Central Bank, while we are committing ourselves for the course of
exchange rates, we are also pre-announcing the gradual exit strategy from this commitment.
47.Our
belief for the applicability of the announced exchange rate policy is perfect.
In the framework of the program, with the permanent strengthening of fiscal
policy and with the trust constituted in the domestic and foreign markets
by the implementations of the central bank, our belief is intensified.
48.As
of today, the central bank foreign exchange reserves amount to 22.6 billion
dollars and it is expected that these reserves will continue to increase with
the implementation of the program and with the financial support of
international institutions in the context of the new program. This situation is
one of the most important elements, making the announced exchange rate policy
applicable (Graphic 7).
49.The
clear exposition of how the exchange rate policy that will form the base
for reducing inflation and inflationary expectations, is going to be arranged gradually
after first 18 months, will eliminate the criticisms towards this kind
of system in the long run.
50.The
consideration of the course of exchange rates within the 12-month periods
(detailed daily) beforehand, will facilitate the foresight of individuals
in the economy and will enable them to make future contracts and plans
in a more secure environment.
51.
With that application; the future developments of exchange rates will be
known and this will minimize the uncertainty about inflation and inflationary
expectations. That process will also contribute to decrease real interest
rates. CBRT believes that the exchange rate policy eliminate the rigidities
rapidly that exist on inflationary expectations.
52.I
again declared that, the existence of permanent improvements in the fiscal
and income policies and sustainable structure of current account balance
enables the success of pre-announced exchange rate policy (Graph
8).
53.I
believe that the exchange rate policy is the most important tool of Central Bank
in reaching to lower inflation targets, which is the final objective of CBRT
in the new century.
MONETARY POLICY
54.Now
I wish to mention briefly about monetary policy, main policy tools and
monetary targets that will be determined in Stand-By agreement with IMF.
55.
The main monetary and exchange rate policy tools of CBRT are foreign exchange
market interventions, open market operations, interbank operations, and required reserve
and liquidity ratios.
56.
The
most important tool of CBRT at reaching its final objective of inflation is to
follow the preannounced path of the basket without permitting any deviations
from that.
57.As
in the case of Staff Monitored Program, we will continue to follow the
reflection of exchange rate and monetary policy in the context of the main
aggregates from the balance sheet of CBRT. Monetary policy and balance sheet of
CBRT are designed by imposing a floor to net international reserves in addition
to a ceiling restriction for the net domestic assets item, which are
fundamental aggregates of our balance sheet.
58.The
definition of ‘net domestic assets’ in the balance sheet of CBRT is same with
the one that is used in the Staff Monitored Program. However, the ‘net foreign
assets’ item is calculated by deducting ‘foreign exchange deposits of the
banking sector’ from the net foreign assets aggregate that is used in the Staff
Monitored program. In some aspects the net international reserve item indicates
the net foreign exchange reserve position of CBRT. Detailed information about
these definitions is given in the appendix 1.
59.The
operational rules of monetary policy in the first 18 months of Stand-By
agreement will be discussed now.
Net Domestic Assets
60.CBRT
is ready to buy all supplied foreign exchange at the predetermined exchange
rate that means injecting Turkish lira to the market by buying foreign
exchange. This is the reflection of our exchange rate policy on the liquidity
policy. CBRT 's Turkish lira funding process will be kept up during the first
18 months period through purchasing foreign exchange.
61.This
funding principle will be strengthened by imposing restriction on net domestic
assets and by decreasing volatility of net domestic assets.
62.Accordingly,
the ceiling to the net domestic assets at the end of each quarter is fixed
at -1200 trillion TL as a performance criterion by the end of year 1999
when the effect of the revaluation account is excluded. (Table 2)
TABLE 2
NET DOMESTIC ASSETS
(Trillion TL)
63.During
the period, net domestic assets will fluctuate roughly within a parallel band
whose upper and lower limits will be determined as ±5 percent of previous
end-quarter base money figures. For example, net domestic assets will fluctuate
in the interval of –1010 and –1390 trillion TL in the January- March 2000
period if the monetary base is assumed to be realized TL 3800 trillion at the
end of 1999. Thus, permitting volatility in the net domestic assets to some
extend, sudden and extreme fluctuations in the interest rates can be avoided.
64.Recently,
we have limited the net domestic assets through decreasing the credits to
public sector and we have been successful in that (graph 9). Today, I want to
state again that in our monetary policy implementation, we will not provide
credits to the public sector which causes an increase in net domestic assets.
Also, we will abandon the policy of decreasing net domestic assets through
sterilization that we have implemented during the periods of surge in foreign
exchange inflows.
65.The
mechanism of exchange rate band will introduce more flexibility to net domestic
assets after the second half of the year 2001. Thus, in line with this
flexibility, the strength of monetary policy in reaching to the inflation
target will continue via increasing the influences of monetary policy on
interest rates.
Open Market
Operations
66.In
2000, the composition of the net domestic assets will be permitted to change,
while the level of the net domestic assets fluctuates within the band mentioned
above. In this framework, the Central Bank’s strategy in open market operations
will tend to compensate the changes in public sector deposit or credit
accounts. Therefore, during the period, we are expecting an intensive
interaction between open market operations under net domestic assets and
credits to public sector items. However, an exception of this situation can be
observed in the religious days due to excessive liquidity need.
Interbank
Money Market
67.Finally,
as to foreign exchange operations and liquidity management, we have to
emphasize that the Central Bank will follow a policy of reducing the volume of
its own transactions in the interbank money market. In this framework, the
Central Bank will determine the bid and offer quotations according to the
developments in the money and repo markets outside itself.
Required
Reserves
68.On
the other hand, reserve requirement policy will be implemented in a more
flexible way in order to facilitate the banks temporary liquidity needs and to
channel them to engage more efficient liquidity management in their operations.
69.Currently
the banks are keeping their reserve requirements in a blocked account at the
central bank and can never use these accounts for their liquidity management.
With the new implementation this ratio which is still 8 percent, decreased to 6
percent for the reserve requirement that the banks will keep in the blocked
accounts, the remaining 2 percent will be kept as free deposits for the
obligation of liquidity ratio and in the context of weekly averages. Therefore
the banks will be able to use the 2 percent of their liabilities freely within
the week with the requirement of holding the average amount throughout the
week.
70.With
current figures, this will enable the banking sector to use TL 350 trillion of
funds on average for their cash management purposes.
71.With
the flexibility introduced to reserve requirements, the banks will be able
to meet the liquidity needs especially in paydays.
72.When
we list the new arrangements that we have introduced into the system, it can be
observed that we are trying to push the banks to manage their liquidity
positions more actively. While the central bank reduces the injection of
Turkish lira liquidity in return of TL transactions, the Bank absolutely
guarantees of injecting liquidity through foreign exchange operations in terms
of not only quantity but also price. In the same way, we are giving an
opportunity to banks to make their liquidity management more effectively by
bringing flexibility in the reserve requirement obligation.
73.When
the Central Bank balance sheet is taken into account, keeping net domestic
assets unchanged indicates that base mone will change only in return for the
change in net foreign assets (newly defined).
74.It
can be seen that this system brings an automatic mechanism that keeps foreign
exchange reserves above a certain level. When there is an excess demand for
foreign exchange, the withdrawal of Turkish lira from the market will not be
compensated by increasing net domestic assets. This, in return, will cause the
demand for Turkish lira to increase and at least the demand for foreign
exchange will vanish.
75.As
a result of this system, interest rates reflect the market conditions compeletly.
In brief, the interest rates gain importance as a factor that brings the
system into equilibrium.
Net International
Reserves
76.Net
international reserves is a new definition. This definition is different from
the concept of gross or usable reserves. The net international reserve levels
that we are planning to keep above, for each quarter, are 12000 million, 12750
million, 12700 million and 13500 million US dollar respectively (Table 3). The
related details are given in the Appendix. These levels are determined by
setting certain margins and by taking into account the automatic mechanism. We
do not expect that the net international reserve stock will approach to these
floor levels. In the event the net international reserves show a tendency to
fall below these limits, the Central Bank will take the necessary measures to
break these trends.
TABLE
3
NET
INTERNATIONAL RESERVES
(Million
US Dollar)
Performance
Criteria
77.Here,
I would like to give some information about the balance sheet targets of the
Stand-by agreement for the year 2000.The targets that we determined for the net
international reserves and net domestic assets represent the floor (minimum)
and the ceiling (maximum) values respectively. While the net international
reserves item is accepted to be a performance criterion in the context of the
Agreement until the first half of the year 2000, it will be an “indicative
floor” in the second half of the year.
78.On
the other hand, the net domestic assets item is a performance criterion during
the year 2000. As I mentioned above, the net domestic assets will fluctuate
within a band. This band is introduced in order to provide some flexibility
into the system (this is not a performance criterion for the program). It is
possible that the net domestic assets can fall below or rise above the limits
of the band in certain days.
79.You
can find the details of the monetary, exchange rate and liquidity policies that
I try to explain here, in the annexes that we distribute to you. These notes
cover the definitions of the net international reserves, net domestic assets
and base money and the new reserve requirement application.
As
a result;
80.I
would like to finish my speech by mentioning a few points about the expected
success of the disinflation program in year 2000. The program, on which we have
been working for nearly two years, is yet to be started. In a technical point
of view, this program reflects the efforts spent on it, with its powerful
content and consistent structure.
81.So
far the political will has shown their support by implementing structural
reforms and approving some critical decrees in the parliament. Here it is worth
mentioning that parliament has taken important decisions, which can be stated
as “difficult to approve.”
82.
The
International Monetary Fund and the World Bank, besides their technical
contribution in designing the program, have proved their support through aids
and project credits.
83.From
now on, all we have to do is to support the program. We should not forget that
this program is the most serious and maybe the last chance to get rid of
inflation, which has been the most important problem of the Turkish economy for
the last 25 years.
I
kindly present you my best regards.
APPENDIX
1
I. THE DEFINITION IN THE
BALANCE SHEET OF CBRT AND PERFORMANCE CRITERIA
DEFINITIOS
There is only basic difference between
the balance sheet introduced by the Stand Monitored Program and the new format
of the Stand-By agreement. The new Net Foreign Assets item is calculated by subtracting the Foreign Exchange Deposits
of Banking Sector, which was formerly under the Reserve Money (X) item, from
the old definition of Net Foreign Assets. In this respect, general definitions
of the basic items of the Stand-By balance sheet can be written as follows;
Base Money = Currency issued + Required
Reserves of TL deposits of the Banking Sector + Free Deposits
Net Domestic Assets = Base Money – Net
Foreign Assets
The detailed
definitions of the above main balance sheet items are as follows:
Base Money: is equal to the total of “currency issued”, “required
reserve of TL deposits of the banking sector” and “free deposits”.
Net Domestic Assets: is equal to the total of
“cash credits to the public sector (net)”, “deposits of public funds”,
“deposits of non-bank sector”, “cash credits to the banking sector”, “open
market operations”, “revaluation account”, “IMF emergency assistance account”
and “others”.
Net Foreign Assets: can be derived by adding to “the net international
reserves”. “net medium-term FX credits”, “deposits under the Dresdner scheme of
original maturity of two years or longer”
and “others”, which include the Turkish Defense Funds.
Net International Reserves contains three main items. The first of these called “Gross
Foreign Assets” is the total of gold, foreign banknotes and correspondent
accounts. The second main item, “Gross International Reserve Liabilities”,
consists of overdrafts, letters of credit, short-term credits, Dresdner account
covering only 1-year original maturity, FX deposits of banking sector and
International Monetary Fund account. The third and last item is the net forward
position, which is zero at the moment.
THE PERFORMANCE CRITERIA
As it is stated before
in the document, a ceiling has been imposed on the Net Domestic Assets
item. This value, which is the same for all periods, can be seen in the
table presented below.
NET DOMESTIC ASSETS
(Trillion TL)
However,
for the calculation of net domestic assets as a performance criterion in
the Stand-By agreement,
A-)
Revaluation account should be subtracted,
B-)
With respect to December 31, 1999, the average of December 10, 1999 and
January 20, 2000 and the exchange rate on December 31, 2000 should be taken
into account
C-)
For the year 2000, the average of the last 5 working days of the each month
in the table will be the basis,
On
the other hand, a minimum level has been imposed for the Net International
Reserves. This item is a “performance criterion” for the first six months
of the year 2000 and an “indicator floor value” for the second six months
of the year 2000.
NET
INTERNATIONAL RESERVES
(Million
US Dollar)
However,
while the Net International Reserves is calculated,
a)
With respect to December 31, 1999, the average of December 10, 1999 and
January 20, 2000 and the exchange rate on December 31, 2000 will be taken
into account
b)
During the year 2000, the value of all the foreign exchange
assets and liabilities in terms of US dollar included in the Net Foreign Assets
(and therefore Net International Reserves) will be calculated according to the
“Program Cross Rates Table” which will be announced in the “Letter of Intent.”
The values of the balance sheet items in terms of US dollar will be converted
into Turkish lira according to current TL/USD rate. As it is stated above, the
TL values of the Net Foreign Assets will be calculated according to the current
TL/USD rate at the end of each quarter during the year 2000.
Therefore,
while the CBRT weekly statement and Analytical Balance Sheet are derived
according to the currently daily cross rates, the balance sheet in the stand-by agreement
will be calculated according to the fixed cross rates announced in the program and
the end period values of targets are calculated by taking into account
these values.
The
remaining technical details related to the targets will be announced in
the Letter of Intention.
CENTRAL BANK BALANCE SHEET IN THE FRAME WORK OF STAND-BY AGREEMENT ON 2000
II. THE AMENDMENT
CONCERNING THE APPLICATION OF RESERVE REQUIREMENT AND LIQUIDITY REQUIREMENT
As it is known, banks hold required reserves in a
blocked account with CBRT for their stock of TL deposit as of the last day of
every week. Besides this, banks hold liquid assets for deposits and other TL
liabilities on a weekly average base.
By the last amendment, the reserve requirement ratio
has been decreased from 8 to 6 percent. On the other hand, 2 percent of TL
deposits will be held as free deposits with the Central Bank. As a liquid asset
without causing any change in the total of the legal requirements. The new
implementation will start on 24th of December 1999.
"The Legal Requirement Table" is shown below;
THE RESERVE REQUIREMENT RATIO (RR) AND LIQUIDITY RATIO (LR)
|
TL Denominated
|
FX Denominated
|
|
|
RR
|
LR
|
TOTAL
|
RR
|
LR
|
TOTAL
|
|
|
|
Free
Deposits
|
Government
Securities
|
Vault Cash
|
|
|
Free
Deposits
|
Government
Securities
|
Vault Cash
|
|
|
Deposits
|
%6
|
%2
|
%4
|
%2
|
%14
|
%11
|
|
%1
|
%2
|
%14
|
|
Other
Liabilities
|
|
%8
|
%4
|
%2
|
%14
|
|
%11
|
%1
|
%2
|
%14
|
|
Excess
Open Position
|
|
%8
|
|
|
|
|
|
|
|
|