The Central Bank of Turkey to Continue Efforts in Improving Reserve Composition
Forex - The Central Bank of the Republic of Turkey (CBRT) announced that efforts to improve the reserve composition will continue in 2025. The CBRT published the "Monetary Policy Text for 2025." Accordingly, a flexible exchange rate regime will be maintained in 2025, and exchange rates will continue to be formed according to the balance of supply and demand under free market conditions.
The CBRT will continue to effectively use all liquidity management tools to strengthen the monetary transmission mechanism and support the monetary policy stance in line with its fundamental goal of price stability. In this context, the framework of liquidity management will be determined by considering the level of liquidity in the market and the distribution of liquidity within the system.
It was stated in the report that the primary policy tool of the CBRT is the one-week repo auction conducted through a quantity auction method. It continued: "In this context, in the management of TL liquidity, ensuring that overnight market interest rates are formed around the policy rate, the effective and stable operation of the money markets in accordance with the implemented liquidity management strategy, the use of tools that support the effectiveness of monetary policy, and ensuring the uninterrupted operation of payment systems are targeted.
To ensure a balanced distribution of liquidity throughout the week, multiple repo auctions with varied maturities between 5 to 12 days may be conducted on days deemed necessary. In the event of unexpected liquidity tightening, an intra-day repo auction will be held using the quantity method on a weekly maturity basis between 1 PM and 4 PM.
As part of the simplification steps, the collateral discount rates applicable to Open Market Operations, Interbank Money Market, and Foreign Exchange Market transactions conducted by the CBRT have been revised. In this context, it has been decided to reduce the discount rate of CPI-indexed Government Domestic Debt Securities (GDDS) and lease certificates from 80% to 30%. In the upcoming period, collateral conditions will be reviewed as necessary.
To maintain diversity of tools and operational flexibility in liquidity management, it is necessary to hold sufficient amounts of GDDS and TL-denominated lease certificates issued by the Turkish Treasury and Finance Ministry Asset Leasing Inc. (HMVKŞ) in the APİ portfolio for technical reasons. Within the framework of the 2024 Monetary Policy Text, a nominal 28.2 billion TL portion of the APİ portfolio, which was at a total nominal level of 193.5 billion TL at the end of 2023, will mature, while lease certificates worth a nominal 9 billion TL will be purchased through auctions held in 2024. As of December 20, 2024, the APİ portfolio will stand at a total nominal level of 174.3 billion TL, consisting of a nominal 9.2 billion TL in lease certificates and a nominal 165.1 billion TL in GDDS."
-CBRT Aims to Maintain APİ Portfolio Size- The CBRT reported that it aims to maintain the current size of its APİ portfolio in 2025. The report stated, "Direct purchase transactions may be carried out to maintain this portfolio size, prioritizing the nominal 36.5 billion TL portion maturing next year."
It continued: "In this context; ▪ Direct purchase transactions will be carried out in a balanced and predictable manner throughout the year, considering the redemption profile of the APİ portfolio and the liquidity conditions in the market, ▪ Priority will be given to TL lease certificate purchases, considering the structure of the APİ portfolio, ▪ The securities to be directly purchased will be announced on the first business day of the month at 10:00 AM through data distribution firms, ▪ The days on which purchase auctions can be held will be determined based on market conditions, and the auctions opened in this context will be settled with a value date of one business day later, ▪ The amounts subject to the purchase auction will be determined based on market conditions, ▪ In addition to the validity of existing regulations regarding other issues related to the auctions, all necessary changes regarding the auction amount, type of securities, and auction method may be made as needed."
-Flexible Exchange Rate Regime Will Continue- The CBRT announced that the flexible exchange rate regime will continue in 2025, with exchange rates formed under free market conditions based on the balance of supply and demand.
The report stated, "The CBRT does not have any targets regarding the level of exchange rates and will not conduct any foreign currency buying or selling transactions to determine the level or direction of rates. The CBRT will continue to closely monitor currency exchange rate developments and related risk factors, taking necessary measures and utilizing relevant instruments to support the effective functioning of the foreign exchange market and healthy price formation."
In 2025, the Central Bank will continue to purchase gold produced from local ore in exchange for TL to build reserves. Additionally, location swap transactions with banks may be conducted based on market conditions.
Exchange transactions involving cash against foreign currency will continue between the CBRT and banks authorized to operate in foreign exchange markets.
The central bank will continue to provide liquidity to banks in the foreign exchange deposit market with a total limit of approximately 50 billion USD for one-week and one-month maturities. Banks may provide collateral foreign exchange deposits or gold deposits to the CBRT within the limits granted to them and for various maturities.
The report continued: "Strengthening international reserves is critically important for the effectiveness of monetary policy and financial stability. International reserves have shown a strong upward trend due to the effects of monetary tightening and the simplification steps taken within the macroprudential framework, with gross reserves reaching 163.5 billion USD as of December 13, 2024. Net reserves, excluding swaps, improved by 87.2 billion USD from the beginning of the year to December 13, 2024, rising to 50.1 billion USD. In this regard, the strategy of accumulating reserves will continue in 2025 as long as market conditions allow, ensuring the continuation of the stable upward trend in international reserves.
The CBRT is reviewing its foreign currency swap agreements with foreign central banks and international deposit purchase transactions to reduce its external liabilities in reserve management. In 2024, reductions in the mentioned items resulted in an improvement of 10.6 billion USD in external liabilities. As international reserves are strengthened, efforts to improve the reserve composition will continue into 2025."
-CBRT Credit Programs- As of December 20, 2024, the amount of rediscount credits extended to exporters and firms engaged in foreign currency-earning services and activities in Turkish lira reached 563.8 billion TL. During the same period, approximately 16.8 billion USD was contributed to the CBRT's foreign currency reserves through foreign currency sales made to the CBRT in relation to rediscount credits.
To ensure the effective use of rediscount credits for export and foreign currency-earning services, starting from January 13, 2025, the requirement of being a net exporter for the use of rediscount credits will be replaced by an exporter scoring system.