Bloomberg News

Turkey’s ‘High-Frequency’ Policy Helps Manage Lira, Basci Says

November 26, 2011

Nov. 26 (Bloomberg) -- Varying interest rates on a daily basis provides the “high-frequency monetary policy” needed to respond to capital flows that can change rapidly, Turkish Central Bank Governor Erdem Basci said.

Since the bank introduced the policy on Oct. 26, the volatility of the Turkish lira exchange rate relative to other emerging market currencies has fallen, Basci told a conference on monetary policy in Istanbul today. It’s an indication that banks can have “some success” in managing currencies with a view to reducing financial instability, he said.

The central bank is using a range of tools in a policy of “inflation targeting plus” that seeks price stability as well as a measure of control over credit growth and the currency, Basci said. “It’s better to have more than one instrument and we’re happy with more than one.”

Under Basci, the bank has used reserve requirements to limit banks’ ability to expand consumer lending as well as sales of foreign currency to manage a decline in the lira, which has lost about 17 percent against the dollar this year.

Controlling credit growth is important as the bank believes it’s the main channel that fuels imports that widen the current- account deficit, Basci said.

“The currency is not the main driver, it is credit because people need money to buy imports,” he told the conference on combining macro-prudential measures with inflation targeting.

--Editors: Mike Harrison, Colin Keatinge

To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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