At our January MPC meeting, we have increased the overnight repo and late liquidity window rates, delivering a strong monetary tightening in order to contain the deterioration in the inflation outlook. The MPC statement underlined that the CBRT will continue to use all available instruments in pursuit of the price stability objective. 8  We have also stated that inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered. Moreover, the statement signaled that necessary liquidity measures will be taken in case of unfounded pricing behavior in the foreign exchange market that cannot be justified by economic fundamentals. The figure depicts the two main interest rates that matters most for the monetary transmission mechanism (Figure 12). The first one is the cost of central bank funding (shown by the red line), which recently has increased by 200 basis points to around 10.3 percent. The second one is the interbank rate (orange line), which has sharply moved up and have been consistently close to 11 percent since our latest MPC meeting. These two rates clearly indicate that monetary policy has been tightened to a great extent. Figure 12.
Yield Curve  5 Year-3 Month Differential in Swap Rates (Percent)  9,5  9,0  9,0 1  2  3  4  5  7  8  9  10  -0,5  -1,0  -1,0  -1,5  -1,5 01.16  0.25 0.5  0,0  -0,5  Term (Year) Source: Bloomberg. 02.17  9,5  0,5  0,0  01.17  10,0  1,0  0,5  12.16  10,0  1,5  1,0  11.16  10,5  10.16  10,5  2,0  1,5  09.16  11,0  2,5  2,0  08.16  11,0  3,0  2,5  07.16  11,5  3,5  3,0  06.16  February 3, 2017  11,5  3,5  05.16  January 9, 2017  04.16  12,0  03.16  12,0  02.16  (Treasuries, Percent)  Source: CBRT, Bloomberg. Were these policies effective? More time is needed to assess the ultimate impact, but the initial response is encouraging. Turkish lira, which has depreciated relative to peer currencies in the second half of 2016, has stabilized after the policy tightening, partly containing the upside risks on the inflation outlook (Figure 15). Figure 15.