The Turkish parliament passed a new law amending the law of the Turkish Central Bank on April 25. This Law is designed to free the Turkish Central Bank from political influence and authorizes it to streamline monetary policy as a completely autonomous body.
According to the Law, the Central Bank will be the only authority in the decision-making and implementation process of fiscal policies. Furthermore, a Council for Monetary Policy will be set up within the Central Bank, whose task will be to monitor the sustainability of the domestic and international value of the Turkish Lira and its circulation in the world markets.
Since the Law widens the scope of the duties of the Central Bank, it will not only provide advisory opinions whenever the government deems it necessary, but it will now be further authorized to determine inflation targets together with the government. Therefore, the Central Bank will carry out its main task of keeping inflation under control.
To achieve transparency in the Central Bank's operations, the prime minister will have direct supervision over the Central Bank and the Central Bank will submit activity reports to the Council of Ministers on a regular basis – twice a year.
Furthermore, the Law requires the Central Bank to supervise all banks and other financial institutions in the country. These institutions will be obliged to submit their balance sheets to the Central Bank following their general assembly meetings. More importantly, the Central Bank will be able to demand any kind of information regarding the financial system from all private and public entities.
The Law strictly forbids the Central Bank from disbursing any loans or making advance payments to the Treasury or any other public institutions. However, the Central Bank, as the lender of last resort, will still be able to service loans to ease the liquidity constraints of the Savings Deposit Insurance Fund.
The financial authorities consider this law as crucial for obtaining foreign financial support to overcome the present financial crisis, which has been continuing for some six months. The issuance of this Law is also an important step in the process of harmonizing Turkish laws to achieve the EU's legal standards.