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CENTRAL BANK OF THE REPUBLIC OF TURKEY
Hüseyin Zafer Executive Director May 2011 1 1
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General Outlook in the Turkish Economy Post-Crisis Challenges
Contents General Outlook in the Turkish Economy Post-Crisis Challenges New Policy Mix as the Response Outcomes of the New Policy 2 2
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I. General Outlook in the Turkish Economy
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Strong Rebound in Economic Activity in 2010
GDP Growth (%) Source: TURKSTAT, SPO 4 4
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Unemployment is Still High but Recovering
Unemployment ratio (%, Seasonally Adjusted) Non-Agricultural Employment and GDP Growth Source: TURKSTAT Last observations: January 2011 5 5
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Inflation Realizations
Disinflation Continues Inflation Realizations (%, red dots are the year-end inflation targets) Source: TURKSTAT
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(%, weighted averages for the categories)
And so Does the Historically-Low Lending Rates.. Lending Rates (%, weighted averages for the categories) Source: CBRT
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Highest Decline in CDS Spreads Despite Highest Interest Rate Cut
CDS Premia of Selected Countries (January 1, 2008=0, April 22, 2011) CDS Premia of Selected Countries (January 1, April 22, 2011) Source: CBRT
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II. Post-Crisis Challenges
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+ Background 10 10 Advanced Economies Low Growth rates &
Very Low Interest Rates Capital Inflows to Emerging Markets + Credit Growth & Risk of Overheating Emerging Markets Strong Growth Prospects & High Interest Rates Risk of future instability! 10 10 10
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Capital Inflows Capital Inflows (USD billion) 11
* After controlling for the effect of change in Decree No. 32 Source: TURKSTAT, CBT 11
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… Supporting the Strong Growth in Credits
Loan Growth (%, year-on-year change) Source: BRSA Last observation: February 2011 12
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… which is Higher than the EU Countries
Change in Bank Credit (%, year-on-year, 2010) Source: ECB Statistical Data Warehouse 13
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Outstanding Outlook in the Banking Sector Capital Adequacy Ratio
Return on Assets (%) Capital Adequacy Ratio (%) Source: IMF Latest Data Available varies btw 14
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…with Comparatively Very Low NPL Ratios
NPL Ratios of Selected Countries (%) NPL Ratios in Turkey (%) Source: IMF, BRSA Latest Data Available varies btw 15
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Strong Balance Sheet of Households
Household Liabilities to GDP Ratios (%) Household FX Positions 2009 Sep. 2010 Households FX Assets* 67,597 69,338 Households FX Liabilities* 2,172 1,572 FX Position* 65,425 67,766 GDP* 616,753 734,723 FX Position/GDP (%) +10.6 +9.2 * (USD million) Source: Eurostat, CBRT Last observations:Sep. 2010 16 16 16 16
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…and Non-Financial Sector Non Financial Companies (NFC) FX Positions
Bank Loans to Non Financial Companies (% of GDP) Non Financial Companies (NFC) FX Positions September 2010 NFC FX Assets* 83,860 NFC FX Liabilities* 173,128 FX Position* -89,268 FX Position/GDP (%)** -12.7 (USD million). ** Note that the short FX position for short term liabilities are less than 1% of GDP (USD 458 mio). Banking Sector FX position is balanced. Source: Eurostat, CBRT Last observations:Sep.2010 17 17 17 17
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Budget Deficit Forecast for 2011 Public Debt Forecast for 2011
… and of Public Sector Budget Deficit Forecast for 2011 (% of GDP) Public Debt Forecast for 2011 (% of GDP) Maastricht Criterium Maastricht Criterium *: Turkey’s budget deficit figure is MTP ( projection) for central govenment. IMF WEO April 2011 budget deficit forecast for Turkey is 1.7% and better than what was envisaged in Turkey’s MTP as 2.1% for general government. *: Turkey’s debt figure is MTP ( ) projection. IMF WEO April 2011 public debt forecast for Turkey is 39.4%. Source: MoF, Treasury, MTP ( ) Targets, IMF WEO April 2011 18 18 18 18
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Stronger Import Demand Partly Fuelled by Credit Growth...
The quantity indices depict the stronger import demand growth compared to export growth. Higher growth in import demand resulted in increasing foreign trade deficit. Export and Import Quantity Indices (3-month MA) Export, Import & Foreign Trade Balance (12-month MA, USD Billion) 19 Source: TURKSTAT 19
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Current Account Balance/GDP
... Leading to a Deterioration in the Current Account… Current Account Balance/GDP (%) Ratio to GDP 2007 2008 2009 2010 2011* CAB -5.3 -6.8 -2.2 -6.6 -7.7 CAB Excl. Energy -1.3 -0.2 1.9 -2.0 -2.6 * As of February 2011, last 12 months. 20 Source: TURKSTAT, CBRT 20 20
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…Although “Current Account Imbalances” is a Global Issue.
Current Account Balance in Some Countries (2010 IMF Forecasts, ratio to GDP, percent) 21 21 Source. IMF, CBRT 21
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III. New Policy Mix as the Response
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The Three Phases of the Monetary Policy since the Collapse of Lehman Brothers
Phase-1: Full liquidity support (after the collapse of Lehman Brothers, September 2008) Phase-2: Exit Strategy (April 2010) Phase-3: New Policy Mix (since November 2010) - A lower policy rate, - Wider interest rate corridor and - Higher reserve requirements 23 23 23
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RRR and the Policy Rate being the Main Monetary Tools
Tools in the order of priority For Financial Stability: Required Reserve Ratios TRY Liquidity Management Short-Term Interest Rates For Price Stability: Short-Term Interest Rates TRY Liquidity Management Required Reserve Ratios 24 24 24
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The New Policy Framework of Two Targets and Two Instruments
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Lower Policy Rate and Wider Corridor
Policy Rate and Interest Rate Corridor (%)
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Higher Reserve Requirements Reserve Requirements Balances
(%) Source: CBRT
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Reserve Requirements – An International Comparison
Current Reserve Requirement Ratios (%) Source: Central Banks, CBRT
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Measures Taken by other Turkish Authorities.
Fiscal discipline No FX loans to households Domestic currency bond market Loan/value restrictions Tax hikes on certain consumer loans Restrictions on credit card borrowing 29 29 29
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IV. Outcomes of the New Policy
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Reserve Requirements Balances
1. Tightening Liquidity Reserve Requirements Balances (billion TRY) Source: CBRT
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2. Desired Level of Volatility in Money Markets
Overnight Interest Rates (%) Swap Rates (%) Source: CBRT
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3. Impact on Currency TRY and Other EM Currencies Against USD ( 4 Jan 2010= 1)
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4. Steeper Yield Curve and Inflation Expectations under Control
(%) Inflation Expectations (%.) *Calculated from the compunded returns on bonds quoted in ISE by using ENS method. 34 34 Source: CBRT 34
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CENTRAL BANK OF THE REPUBLIC OF TURKEY
Hüseyin Zafer Executive Director May 2011 35 35
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Monetary Policy Outlook
Reserve Slides Monetary Policy Outlook 36 36
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Baseline Scenario – Inflation Report (April 28, 2011)
The net impact is on the tightening side. 20-25% annual credit growth is targeted at the end of 2011 Risks both on the downside and on the upside 37 37 37
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Inflation and Output Gap Forecasts
(%) Inflation Forecasts (%) 38 38 Source: CBRT, April 2011 Inflation Report 38
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Risk Scenarios 39 39 Scenario 1
In case global economic problems intensify and contribute to stronger capital flows, a policy mix of low policy rate, high RRR and wider interest rate corridor may be implemented for a long period. If this scenario leads to weaker domestic demand, it may require an easing in all instruments. Scenario 2 If the global economy faces a faster-than-expected recovery, global inflation may increase and thus trigger a tightening in the monetary policies of developed economies. Materialization of such a scenario would mean higher global interest rates and demand-driven domestic inflation, and thus necessitate a tightening by using both policy rates and reserve requirements. Scenario 3 The increases in commodity prices, if they persist, exert risks regarding general pricing behavior, given the strong pace of domestic demand. Should such a risk materialize and hamper the attainment of the medium-term inflation targets, there may be stronger tightening than envisaged in the baseline scenario. Higher commodity prices may worsen the current account balance. Therefore, the policy mix may vary depending on the developments regarding external demand, capital flows, and the outlook for credit growth. 39 39 39
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