The Impact of Central Bank Interest Rate Releases on Financial Markets

Article Information
Journal: Business and Economics Research Journal
Title of Article: The Impact of Central Bank Interest Rate Releases on Financial Markets
Author(s): Neilan Soylu, Turhan Korkmaz, Emrah İsmail Çevik
Volume: 5
Number: 4
Year: 2014
Page: 89-118
ISSN: 1309-2448
Since the implementation of a new explicit inflation targeting policy in 2005, CBRT has followed a more transparent communication strategy. This has made more information available to markets regarding its decision making process in order to increase predictability. Within this framework, MPC meetings have been held on a scheduled monthly basis, at preannounced dates. After the meetings, the policy rate decisions were made public immediately, followed by a text providing the rationale behind the decisions. Through these implementations, CBRT provides guidance to the markets. In this study, the impact of Central Bank Interest Rate Releases on financial markets has been investigated in the period between February 2005 and April 2013. The variables used in this study are BIST 30 Index, US Dolar/TRY and EURO/TRY exchange rates, both spot and futures daily return series. The impact of interest rate releases on conditional mean and volatility was investigated using GARCH and EGARCH models. Empirical results suggest that markets respond differently when policy interest rates are separated into rate increases and rate decreases in policy rates.
Keywords: Central bank, interest rates decisions, BIST 30, exchange rates, volatility
JEL Classification: E52, E58, G17 Full Text