Central Banking in Making during the Post-crisis World and the Policy-Mix of the Central Bank of the Republic of Turkey

After the global crisis, one of the most important lessons learned by central banks appears to be the vital importance of financial stability along with price stability. Hence, finding solutions to how to incorporate the financial stability objective in the pursuit of monetary policy without diluting the price stability objective has started to be heavily discussed by academics and policy makers. Accordingly, it has started to be debated that the using of only short-term interest rates as the main policy tool may not be enough to maintain price stability and financial stability at the same time. Interest rates that provide price stability and financial stability can be different and
this necessitates central banks to use multiple policy tools. In view of this, the Central Bank of the Republic of Turkey adopted a new monetary policy framework called the new policy mix in which multiple tools are employed to achieve multiple objectives. In this framework, the required reserves ratios, weekly repo rates, interest rate corridor,
funding strategy and other macro prudential tools are jointly used as complementary tools for the credit, interest rate and liquidity policies to achieve the price and financial stability objectives concurrently. This new monetary policy adopted in Turkey also provides an interesting case study to assess how a country came up with novel policies to account for its country specific characteristics.