Turkey deputy governor evaluates success of policy moves

Turalay Kenç, a deputy governor at the Central Bank of Turkey, on Wednesday explained the policy decisions taken recently to limit the effects of the capital inflows the country is experiencing.

Speaking at the National Asset-Liability Management event in Istanbul, Turkey, he described how the central bank had reacted to credit growth in Turkey, which was fed by "high and volatile" foreign capital inflows. "The short-term nature of the flows this time is a problem," said Kenç.

Contrary to past policy decisions, Kenç explained that this time the central bank decided to lower the benchmark interest rate. Another measure, which he said had proven successful was the "widening of the interest rate corridor", that is the difference between the borrowing and lending interest rates.

Turkey also put in place a very tight liquidity management policy and strengthened the reserve requirement policy.

Kenç stressed that the response was not just down to the central bank, financial stability policies were the responsibility of other institutions as well, he said. High levies were imposed on consumer loans and the banking regulatory authority in Turkey increased the loan-to-value ratios in the country. Banks were also encouraged to issue Turkish lira-denominated bonds.

Kenç said that Turkey's reserve management policy was "very conservative", and the flexibility of the requirements were helpful. Answering a question from the audience about Turkey's intention to join the European Union, Kenç said it was apparent that public enthusiasm for the move had "disappeared", but nevertheless, the government was still working towards that goal.