The Interest Rate Corridor as a Macroprudential Tool to Mitigate Rapid Growth in Credits: Evidence from Turkey

Abstract

The Central Bank of the Republic of Turkey (CBRT) has utilized the interest rate corridor as a macroprudential tool to mitigate rapid credit growth in Turkey since October 2011. This paper examines whether the interest rate corridor can be used as a macroprudential tool to affect credits in Turkey. According to the findings of the paper, the uncertainty about the funding amount and the funding cost created by the CBRT through the interest rate corridor has statistically significant impacts on credits. Eventually, upon its findings, the paper asserts that the interest rate corridor can be utilized as a macroprudential tool to affects credits and aggregate demand in Turkey.

Keywords

• The Central Bank of the Republic of Turkey
• macroprudential tool
• the interest rate corridor
• the difference between the upper bound of the corridor and the policy rate