To ensure smooth operation of the New Turkish Lira money markets and to contain the potential volatility in short term interest rates, the Monetary Policy Committee, judging that inflation will display a more rapid fall than envisaged before, has lowered the borrowing rates by 50 basis points and the lending rate by 100 basis points on November 19, 2008. This allowed the margin between the lending and borrowing rates to be reduced by a further 50 basis points. BIS Review 153/2008  1  We are also aware of the significance of foreign exchange liquidity in the banking system and progressively put into effect necessary measures in order to get through this period with minimal damage. To that end, we have resumed our role to act as an intermediary in the FX deposit market as of 9 October 2008, and later doubled the transaction limits to 10.8 billion USD. During times of confidence breakdowns among the participants of the financial markets, central banks can serve as a blind broker to intermediate in the foreign currency lending market. In this FX deposit market, banks can post their bids for foreign exchange without disclosing their identities. It also acts as a market of last resort as the banks can borrow directly from the Central Bank.
They include the need to designate a Euro area finance minister with her own budget for macroeconomic stabilisation, a rainy-day fund with or without the possibility of issuing debt, a European unemployment (re-)insurance scheme, and so on. Views on these proposals, however, differ in terms of size, allocation of competences, political feasibility and in many other respects. According to Banco de España simulations, the effective design of any of the proposals needs to be sizable enough to provide stabilizstion for an economy facing a recession, even a large economy facing a deep recession. The trigger mechanism must be clear and smooth to ensure a timely response. But it should also address legitimate concerns over moral hazard and permanent transfers. The phasing-out should ensure that fiscal transfers will not be permanent so as to avoid undue redistribution across member states. To preserve sound incentives, in my view, countries with access to this instrument must comply with fiscal rules and with the rules of the Macroeconomic imbalances procedure. Even countries with a good fiscal record can fail to deal with sizable shocks, but ex ante compliance with fiscal rules –and a transparent process- is necessary to dispel doubts about the behaviour of the country under stress, while also providing flexibility for national fiscal buffers. The Banco de España simulations show that, with an annual contribution of 0.35% of GDP per country, it is possible to design a fiscal capacity with a risk-sharing capacity similar to that of the existing instruments in the US.