This has been accomplished without any evidence of market disruption or volatile price movements; it has been, as former Chair Janet Yellen once said, like “watching paint dry.” 12 The charts in Figure 4 also show the projected progression of the portfolio for the rest of the year. Runoff from the balance sheet increases over the projection horizon, as the caps attain their terminal value later this year. As had been expected at the start of the program, principal repayments from our agency MBS portfolio are projected to eventually start coming in below the level of the caps. Based on current projections, principal payments on the Federal Reserve’s holdings of agency MBS would likely be lower than the monthly cap on redemptions that will be in effect beginning in the fall of this year. Consistent with the Policy Normalization Principles and Plans, when this occurs in a given month, no reinvestment occurs, and the portfolio size declines by the amount of principal repayment. It is important to remember that mortgage principal repayments are uncertain; are sensitive to various factors, particularly long-term interest rates; and could conceivably rise above the level of the cap in the future, particularly if interest rates were to decline. If this were to occur, those amounts above the cap would be reinvested. The cap-based program to normalize the balance sheet was designed at the start to operate exactly in this way: it is the mechanism by which the decline in the balance sheet is kept to a gradual and predictable pace.
The aim of the CBRT’s road map is to improve the resiliency of the economy to external shocks through (i) maturity lengthening – encouraging banks to shift their non-core liabilities from short-term to long-term (Figure 17); (ii) providing incentives to banks for borrowing and lending  BIS central bankers’ speeches  7  directly from and to the Central Bank in times when foreign players are reluctant to engage with banks in Turkey due to heightened volatility in global markets; (iii) bolstering safety-nets – making sure that the banking sector has access to adequate foreign exchange liquidity in times of market stress; (iv) supporting financial stability – providing incentives to banks to improve loan to deposit ratios; and (v) simplifying the monetary policy framework to improve the communication of the monetary policy stance. All but the interest rate corridor simplification step on the roadmap have already been taken and the focus is now firmly on fine-tuning their parameters. Overall, these measures ease the policy tradeoffs posed by the excessive volatility in cross border flows, enabling the interest rate policy to concentrate on the primary objective of price stability. So far the financial market performance of Turkey suggests that the measures undertaken since August 2015 have helped Turkey outperform many peer EMEs. Of course, on the way, Turkey also enjoyed the benefits of lower oil prices relatively more than many EMEs and reduced political uncertainty after the general election result in November 2015.