The Central Bank of the Republic of Turkey (CBRT) on Monday announced that it had decided to complete a simplification process for the operational framework of its monetary policy.
"One-week repo rate will be the policy rate of the Central Bank," it said. "This rate will be equal to the current funding rate (16.5 percent)."
"Central Bank overnight borrowing and lending rates will be determined at 150 basis points below/above the one-week repo rate," the bank added.
The bank stated that the new operational framework will take effect on June 1.
Currently, the bank's policy rate, also know as the one-week repo rate, stands at 8 percent. Last week, the bank raised the late liquidity window interest rates — from 4-5 p.m. (1300-1400GMT) — by 3 percentage points.
At a May 23 unscheduled Monetary Policy Committee (MPC) meeting of the bank, the borrowing rate was kept at 0 percent while the lending rate was raised from 13.50 to 16.50 percent, following sharp fluctuations in foreign exchange rates.
Last week, the U.S. dollar/Turkish lira exchange rate hit a historic high of around 4.93, versus 3.78 at the beginning of 2018, while last year's average rate was 3.65.
After the bank's announcement on Monday, the dollar/lira rate fell to below 4.60 as of noon local time (0900GMT), down from 4.7210 by market close on Friday.
On May 24, the bank also raised the upper limit of its forward foreign exchange sale position for the second quarter of this year, and the next day fixed the foreign exchange rates for rediscount credit repayments for exports.
In the recent years, the Central Bank has been working to simplify the process of its monetary policy’s operational framework and enhance the predictability of monetary policy.
At the end of 2016, the bank decided to reduce its number of MPC meetings — where short-term interest rates with overnight, one-week repo, and late liquidity windows are determined — from 12 times a year to eight.
Under the bank's schedule, the fifth MPC meeting this year is set for June 7.