VKF_FRAE_2017

PART I: INTRODUCTION 40 VakıfBank Annual Report 2017 Central Bank of the Republic of Turkey (CBRT), in line with its main objective of maintaining price stability, maintained a tight monetary stance in 2017. THE WORLD AND TURKEY IN 2017 The CBRT began Turkish lira-settled foreign exchange sale auctions at negotiated maturity terms, and allowed the repayment in TL of export rediscount loans generating foreign exchange revenues, which mature until February 1, 2018. »» THE CURRENT ACCOUNT DEFICIT STOOD AT USD 47.1 BILLION IN 2017. The current account deficit, which was USD 33.1 billion in back 2016, rose to USD 47.1 billion in 2017. The current account deficit / GDP ratio is expected to come in as 5.5%. The increase in the goods trade and the resurgence of economic activity played an important role in the sharp rise of the current account deficit in 2017. Foreign currency entering Turkey in the form of direct investments and other forms of investment played a significant role in financing the current deficit. It is considered that the current account deficit will rise since the economic activity is expected to remain vibrant in 2018. However, if the gold trade goes through a normalization process, the rise in the current deficit may remain limited. »» THE CBRT MAINTAINED ITS TIGHT MONETARY POLICY IN 2017. Central Bank of the Republic of Turkey (CBRT), in line with its main objective of maintaining price stability, maintained a tight monetary stance in 2017. To provide funding to the markets in 2017, CBRT used mainly the marginal funding rate, and the overnight Late Liquidity Window, applied between 16.00-17.00 hours in the Interbank Money Market. CBRT raised the interest rate of the Late Liquidity Window from 10% in January to 11%, 11.75% in March and to 12.25% in April. Finally, the CBRT increased its Late Liquidity Window lending rate to 12.75% at its December meeting, thus achieving an overall 275 basis point increase throughout the year. The CBRT did not change its one- week repo auction rate during the year, and kept it stable at 8%. In the first meeting of the year, CBRT increased the marginal funding rate, which is the upper limit of its interest rate corridor, by 75 basis points to 9.25%, and maintained this ratio during the rest of the year. The CBRT, which did not hold weekly repo auctions, reduced the banks’ borrowing limits in the Interbank Money Market down to zero in November. Thus, since the CBRT began to CURRENT ACCOUNT DEFICIT Source: CBRT *Current Account Deficit/GDP is based on expectations. 0 20 40 60 80 10 8 6 4 2 0 2017 * 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Current Account Deficit (GDP%, right axis) Current Account Deficit (annually, USD)