Download ECONOMIC OUTLOOK MONETARY POLICY and January 3, 2012

ECONOMIC OUTLOOK and MONETARY POLICY
January 3, 2012
Ankara
Outline
I.
Recovery After 2008
II.
Global Monetary Expansion
III. Implications on Emerging Markets
IV. Reflections on Turkish Economy
V.
Price and Financial Stability in Turkey
2
Outline
I.
Recovery After 2008
II.
Global Monetary Expansion
III. Implications on Emerging Markets
IV. Reflections on Turkish Economy
V.
Price and Financial Stability in Turkey
3
Turkey and US
135
GDP
Unemployment
(Real, 2007=100)
(Percent)
Turkey
US
130
14
US
Turkey (right axis)
15
12
14
10
13
8
12
6
11
4
10
2
9
0
8
125
120
115
110
105
100
95
90
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country
projections are based on IMF data.
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country projections
are based on IMF data.
4
Turkey and UK
GDP
Unemployment
(Real, 2007=100)
(Percent)
135
Turkey
UK
130
8.5
15
UK
Turkey (right axis)
8.0
14
125
7.5
120
7.0
115
6.5
12
110
6.0
11
105
5.5
13
10
100
5.0
95
4.5
90
4.0
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country
projections are based on IMF data.
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country projections
are based on IMF data.
9
8
5
Turkey and Eurozone
GDP
Unemployment
(Real, 2007=100)
(Percent)
135
Turkey
Eurozone
130
10.5
10.0
Eurozone
Turkey (right axis)
15
14
125
9.5
120
9.0
115
8.5
12
110
8.0
11
105
7.5
13
10
100
7.0
95
6.5
90
6.0
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country
projections are based on IMF data.
9
8
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country projections
are based on IMF data.
6
Turkey and Brazil
GDP
Unemployment
(Real, 2007=100)
(Percent)
17
135
Turkey
Brazil
15
Brazil
Turkey (right axis)
16
130
14
15
125
14
120
13
13
115
12
110
11
12
11
10
105
9
10
100
8
9
95
7
6
90
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country
projections are based on IMF data.
8
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country projections
are based on IMF data.
7
Turkey and Czech Republic
135
GDP
Unemployment
(Real, 2007=100)
(Percent)
16
Turkey
15
Czech Republic
Czech Republic
130
14
125
12
Turkey (right axis)
14
13
120
10
12
115
8
110
11
6
105
10
4
100
95
2
90
0
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country
projections are based on IMF data.
9
8
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country projections
are based on IMF data.
8
Employment
Average Annual Employment Growth*
(Percent, 2007-2010)
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
Source: IMF WEO, ILO, TURKSTAT, CBRT.
*Difference of natural logs
9
Employment: Turkey and US
Total Employment
(Seasonally Adjusted, Non-Agricultural, Million People)
18.5
145
Turkey
18.0
US (right axis)
140
17.5
135
17.0
16.5
16.0
15.5
130
125
120
15.0
115
14.5
14.0
13.5
110
105
Source: TurkStat, ADM, CBRT.
10
Labor Market Participation: Turkey and US
Labor Participation Rate
(Seasonally Adjusted, Percent)
67.0
51.0
US
Turkey (right axis)
66.5
50.0
66.0
49.0
65.5
65.0
48.0
64.5
47.0
64.0
46.0
63.5
63.0
45.0
Source: TURKSTAT, BLS, CBRT.
11
Labor Market Participation By Gender
Male and Female Participation Rates in Turkey
(Seasonally Adjusted, Percent)
75
33
74
32
Men
Women (right axis)
73
31
72
30
71
29
70
28
69
27
68
26
67
25
66
24
65
23
Source: TurkStat, CBRT.
12
Capital
Capital Stock
(constant prices, 2008=100)
130
130
120
120
110
110
100
Trend
100
90
90
80
80
70
70
Capital Stock
60
60
50
50
Source: TURKSTAT, CBRT.
13
Outline
I.
Recovery After 2008
II. Global Monetary Expansion
III. Implications on Emerging Markets
IV. Reflections on Turkish Economy
V.
Price and Financial Stability in Turkey
14
Monetary Expansion (US)
(Billion USD)
Excess Reserves (FED)
1800
1600
1400
1200
1000
800
600
400
200
0
Source: FED, CBRT.
15
Monetary Expansion (UK)
(Billion Pound)
Excess Reserves* (BoE)
180
160
140
120
100
80
60
40
20
0
Source: BoE, CBRT.
*Excess Reserve= Banking sector free deposits + Short term open market operations
16
Monetary Expansion (Eurozone)
(Billion Euro)
Excess Reserves* (ECB)
700
600
500
400
300
200
100
0
Source: ECB, CBRT.
*Excess Reserves=ECB Balance Sheet Deposit Facility + Fixed Term Deposits
17
Volatility of Volatility
Market Volatility Index*
90
0.16
VIX
VIX_SD (right axis)
80
70
0.14
0.12
60
0.1
50
0.08
40
0.06
30
20
10
0
* VIX_SD is the standard deviation of daily percentage changes in the VIX index for the last 150 days.
Source: CBRT, Bloomberg.
0.04
0.02
0
18
Outline
I.
Recovery After 2008
II.
Global Monetary Expansion
III. Implications on Emerging Markets
IV. Reflections on Turkish Economy
V.
Price and Financial Stability in Turkey
19
Global monetary expansion…
Capital Flows to EMs and Real Effective Exchange Rate*
(Billion USD, Index 2005=100)
900
130
FDI
800
700
Portfolio Flows
125
Other Investments
REER (right axis)
120
600
500
115
400
110
300
105
200
100
100
0
95
-100
-200
90
2008
2009
* EMs cover 30 countries from Asia/Pacific, Europe, Latin America and MENA regions.
**2011 data is IIF forecast.
Source: IIF, CBRT.
2010
2011**
20
…led to appreciation pressures on currencies…
Average of EM currencies against USD*
(4 Jan 2010=1)
1.15
1.05
Depreciation
1.1
1
Appreciation
0.95
0.9
Source: Bloomberg, CBRT.
*Average of emerging market currencies, including Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South Korea and
Colombia.
21
…and rapid credit growth in EMs.
Net Domestic Credit Growth*
(Percent)
30
2009
2010
25
20
15
10
5
0
Korea
Czech Rep.
Hungary
South Africa
Poland
Indonesia
Brazil
Turkey
-5
*Net domestic credit is the sum of net credit to the nonfinancial public sector, credit to the private sector and other accounts.
Source: World Bank.
22
Outline
I.
Recovery After 2008
II.
Global Monetary Expansion
III. Implications on Emerging Markets
IV. Reflections on Turkish Economy
V.
Price and Financial Stability in Turkey
23
Need for Rebalancing
Global monetary expansion combined with a strong recovery led to an imbalance between external and domestic
demand growth rates.
Monthly Imports and Exports
(Seasonally Adjusted, Million USD)
20000
Exports (excluding gold)
Imports
18000
Main Sources of Current Account Deficit Finance
(12-months Cumulative, Billion USD)
70
60
Portfolio and Short-Term*
FDI and Long Term
Current Account Deficit
50
16000
40
14000
12000
30
20
10
10000
0
8000
6000
Source: TurkStat, CBRT.
-10
-20
Source: CBRT.
*Short-term capital movements are sum of banking and real sectors' short term
net credits and deposits in banks.
24
Need for Rebalancing
Current Account Balance
Capital Flows and Credit Growth
(Seasonally Adjusted, Monthly Average, Million USD )
(percent)
3000
16
2000
Change in
Credit/GDP
14
1000
12
0
-1000
10
-2000
8
-3000
6
-4000
4
-5000
Current Account
-6000
Current Account (Excluding Energy)
Net Capital Flows/GDP
2
-7000
0
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2
3
4
2010
Source: TURKSTAT, CBRT.
*July and August figures are realization, September and Q4 figures are forecast.
1
2
3
4
2007
Source:TurkStat, CBRT .
1
2
3
2008
4
1
2
3
2009
4
1
2
3
4
2010
25
Outline
I.
Recovery After 2008
II.
Global Monetary Expansion
III. Implications on Emerging Markets
IV. Reflections on Turkish Economy
V. Price and Financial Stability in Turkey
26
Policies Against Short Term Capital Flows
Strong Inflows
Outflows/Weak Inflows
FX Purchases
FX Sales
Decreasing the lower bound of
the interest rate corridor
Increasing the upper bound of
the interest rate corridor
RRR hikes
RRR cuts
27
Measures Against Excessive Credit Growth
Predominant Policy
Before August 2011
Macroprudential Tightening
After October 2011
Monetary Tightening
28
Sequencing
TL Required Reserve Ratios (RRR)
CBRT Policy Rates
(Percent)
(Percent)
18
25
QE2
16
Eurozone
Debt Crisis
QE2
Eurozone
Debt Crisis
20
14
12
15
Adoption of 1-week repo rate
as the policy rate
10
8
10
6
4
The range of RRR
2
5
Weighted average RRR
0
Source: CBRT.
O/N Lending - Borrowing
Interest Rate Corridor
1-week Repo Rate
0
Source: CBRT.
29
Liquidity Management
Composition of Liquidity
(Two Week Moving Averages, Billion TL)
80
CBRT Other Funding
70
1 Week Repo (at Policy Rate)
60
3 Month Repo
50
Interbank ON Borrowing
40
ISE ON Reverse Repo
30
Net OMO
20
10
0
-10
-20
Source: CBRT.
30
Liquidity Management
Excess Reserves* (CBRT)
(Billion TL)
60
50
40
30
20
10
0
Source: CBRT.
* Excess Reserves = Sterilization through O/N Borrowing + Banking Sector Free Deposit - Banking Sector Required Reserves
31
Liquidity Management
CBRT Funding
(Billion TL , 14.10.2011-30.12.2011)
The liquidity need of the banking system was realized as 41.5 billion TL on average in
December. In addition to the daily one-week repo auctions, since December 30, 2011 the
CBRT started to conduct one-month repo auctions via traditional method every Friday. It
is decided that in additional-monetary-tightening days, one week repo auctions are going
to be conducted via traditional method.
80
Monthly Repo
Interbank Lending
70
Weekly Repo (at Policy Rate)
ISE Repo
60
Weekly Repo (with Traditional)
PD Repo
50
40
30
20
10
0
Source: CBRT.
32
Liquidity Management
ISE O/N Repo Rates
(Percent)
O/N interest rates have continued to keep its high level in December as a result of the MPC
decision to widen the interest rate corridor and to decrease funding through repo
auctions.
ISE O/N Repo Rates
Source: CBRT.
33
Inflation Developments
Forecast Range*
Uncertainty Band
Year-End Inflation Targets
Actual Inflation
12
10
8
Control
Horizon
Percent
6
4
2
0
-2
-4
* Shaded region indicates the 70 percent confidence interval for the forecast.
34
Main Drivers of Inflation so far
November Inflation
9.5
Contribution of Exchange Rate and Import Price Pass-Through
4.5
Contribution of Administered Prices
1.6
35
Trend Inflation
Core Inflation Indicator (I)
Services and Core Goods
(Contribution of Subgroups to Annual Inflation)
(Seas. Adjust., Annualized 3-Month Average, % Change)
20
10
Core Goods
Core Goods
Services
8
15
6
10
4
5
2
0
0
-5
-2
-10
Source: TURKSTAT, CBRT.
* Core goods: Goods excluding food, energy, alcoholic beverages, tobacco and
gold.
Source: TURKSTAT, CBRT.
Services
36
Trend Inflation
Price Diffusion Indices (H and I)
Inflation Expectations*
(Seasonally Adjusted, 3-Month Average)
0.6
10
0.5
9
I
12-Month
H
24-Month
0.4
8
0.3
7
0.2
6
0.1
5
0.0
4
Source: TURKSTAT, CBRT.
* CBRT Survey of Expectations, second survey period results.
Source: CBRT.
37
Monetary and Financial Conditions
2-Year Real Interest Rates*
Yield Curve*
(Percent)
4.0
11
450
2-year Real Interest Rates
3.5
10.5
3.0
EMBI+ Turkey (right axis)
400
350
10
300
Yield (percent)
2.5
9.5
19 October
250
30 December
2.0
200
9
1.5
150
8.5
1.0
100
8
0.5
50
7.5
0.0
0
0.5
1
1.5
2
2.5
Maturity (year)
3
3.5
4
*Calculated from the compounded returns on bonds quoted in ISE
Bonds and Bills Market by using ENS method.
Source: CBRT.
* Calculated as the 2-year discounted bond returns derived from the yield curve,
minus the 2-year ahead CPI inflation rate in the CBRT's Survey of Expectations.
Source: ISE, CBRT.
38
Monetary and Financial Conditions
8
7
TL Business Loan Rates*
TL Consumer Loan Rates*
(Percent)
(Percent)
Business Loan Rate - Deposit Rate
Business Loan Rate (right axis)
15
20
20
Housing
14
Personal
18
18
16
16
14
14
12
12
10
10
8
8
13
6
12
5
4
3
11
10
9
8
2
7
1
0
*Annual interest rates, 4-week average.
Source: CBRT.
6
5
*Flow.
Source: CBRT.
39
Exchange Rates and Credit Growth
TL and Emerging Market Currencies*
Loan Growth Rates *
(October 1, 2010 = 1)
(13-Week Average, Annualized, Percent)
1.4
60
Turkey
Emerging Economies Average
2007-2010 average
2011
1.35
50
1.3
1.25
40
1.2
1.15
30
1.1
1.05
20
1
10
0.95
0.9
*Against USD. Average of normalized exchange rates of Brazil, Chile, Czech
Republic, Hungary, Mexico, Poland, S. Africa, Indonesia, South Korea and
Colombia. Increases imply depreciation of domestic currency against USD.
Source: Bloomberg, CBRT.
0
*FX adjusted.
Source: CBRT.
40
Rebalancing of the Economy
Composition of Demand
Imports and Exports*
(Seasonally Adjusted, 2008Q1=100)
(Seasonally Adjusted, Million USD)
115
22000
Exports
110
Final Domestic Demand
Exports (excluding gold)
Imports
Imports (excluding energy)
20000
105
18000
100
16000
95
14000
90
12000
85
10000
80
8000
75
70
6000
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2005
2006
2007
Source: TURKSTAT, CBRT.
2008
2009
2010
2011
*Estimate for December.
Source: TURKSTAT, CBRT.
41
Rebalancing of the Economy
Current Account Balance
Main Sources of Current Account Deficit Finance
(Seasonally Adjusted, Monthly Average, Million USD )
(12-months Cumulative, Billion USD)
4000
90
80
2000
Portfolio and Short-Term*
FDI and Long Term**
Current Account Deficit
70
60
0
50
40
-2000
30
20
-4000
10
-6000
0
Current Account
-10
Current Account (excluding energy)
-8000
-20
1
2
3
2007
4
1
2
3
2008
*Estimate.
Source: TURKSTAT, CBRT.
4
1
2
3
2009
4
1
2
3
2010
4
1
2
3 4*
2011
*Portfolio and Short-term capital movements are sum of equities, treasury bonds,
banking and real sectors' short term net credits and deposits in banks.
** Long-term capital movements are sum of banking and real sectors’ long term
net credits and bonds issued by banks and the Treasury. Source: CBRT.
42
Leading Indicators
Global PMI Indices
Industrial Production and PMI in Turkey
(Seasonally Adjusted)
(Seasonally Adjusted)
150
65
Manufacturing
60
65
IP
Services
140
PMI (right axis)
60
55
55
130
50
50
120
45
45
110
40
40
35
30
Source: Bloomberg.
100
90
Source: MARKIT, TURKSTAT.
35
30
43
Leading Indicators
New Orders* and Capacity Utilization
Investment Tendency*
(Seasonally Adjusted)
(Seasonally Adjusted)
50
85
New Orders
40
Capacity Utilization (right axis)
30
40
80
20
30
10
20
75
-10
10
0
0
70
-20
-30
-10
65
-20
-30
-40
-50
60
*Question number 17 from Business Tendency Survey: How do you expect your
overall orders to develop over the next three months?
Source: CBRT.
-60
*Question number 23 from Business Tendency Survey: Compared to the last 12
months, how do you expect your fixed investment expenditure to change over the
next 12 months?
Source: CBRT.
44
Rollover Ratio
Foreign Debt Rollover Ratio of Banks
(Percent)
175
150
125
100
75
50
25
Source: CBRT.
45
Rollover Ratio
Foreign Debt Rollover Ratio of Nonbank Private Sector
(Percent)
300
Nonbank Private Sector
Nonbank Private Sector (revised series after amendment of decree 32)
250
200
150
100
50
0
Source: CBRT.
46
Reserves
Reserves of the CBRT
(FX and Gold, Million USD)
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
Source: CBRT.
Latest observation: December 30, 2011.
47
Drains on Foreign Currency Assets
Reserve Assets and Predetermined Short-term Net
Drains on Foreign Currency Assets
Billion USD
120
100
Predetermined short-term net drains on foreign currency assets
Contingent short-term net drains on foreign currency assets
Official reserve assets and other foreign currency assets
Reserve Assets/Total Liabilities (right axis)
2.5
2.0
80
1.5
60
1.0
40
20
0
0.5
0.0
Source: Data can be obtained from the CBRT website. http://www.tcmb.gov.tr/odemedenge/rezerv/RT201111T.pdf
48
FX Loans
FX Loans to Total Loans*
(Percent, 2011Q2)
100
90
80
70
60
50
40
30
20
10
0
*Loans provided by the banking sector.
Source: CBRT, BRSA, IMF Financial Soundness Indicators.
49
Policy Transmission Channels
Direct
Indirect
TL Funding
Credit Growth
Exchange Rate
FX Sales
Volatility of the
Exchange Rate
Credit Growth
50
Implied Exchange Rate Volatility
Volatility in Emerging Market Currencies
(Percent, Implied for the next 12 months)
30
25
Emerging Economies*
Turkey
20
15
10
5
Source: Bloomberg, CBRT.
*Average of emerging market currencies, including Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South Korea,
Colombia and Turkey.
51
Exchange Rates: Daily Volatility
TL and Brazilian Real*
0.040
0.040
0.035
0.035
0.030
0.030
0.025
0.025
0.020
0.020
0.015
Brazilian Real
0.010
0.015
0.010
TL
0.005
0.005
0.000
0.000
Source: CBRT, Bloomberg.
* Volatility is the standard deviation of daily percentage changes in the last 50 days.
52
Exchange Rates: Daily Volatility
TL and Hungarian Forint*
0.040
0.040
0.035
0.035
0.030
0.030
0.025
0.025
0.020
Hungarian Forint
0.020
0.015
0.015
0.010
0.010
TL
0.005
0.005
0.000
0.000
Source: CBRT, Bloomberg.
* Volatility is the standard deviation of daily percentage changes in the last 50 days.
53
Exchange Rates: Daily Volatility
TL and Polish Zloty*
0.040
0.040
0.035
0.035
0.030
0.030
0.025
0.025
0.020
0.020
Polish Zloty
0.015
0.015
0.010
0.010
TL
0.005
0.005
0.000
0.000
Source: CBRT, Bloomberg.
* Volatility is the standard deviation of daily percentage changes in the last 50 days.
54
Exchange Rates: Daily Volatility
TL and South African Rand*
0.040
0.040
0.035
0.035
0.030
0.030
0.025
0.025
0.020
0.020
S.African Rand
0.015
0.010
0.015
0.010
TL
0.005
0.005
0.000
0.000
Source: CBRT, Bloomberg.
* Volatility is the standard deviation of daily percentage changes in the last 50 days.
55
Exchange Rates
Percentage Changes in Exchange Rates
01.11.2010 – 22.08.2011
30
23.08.2011 – 02.01.2012
20
20
15
10
10
0
5
-10
-20
-30
Source: Bloomberg, CBRT.
Note: Positive change means depreciation against US dollar.
0
-5
56
TL and Euro
TL/Euro
(1 Oct 2010=1)
2.7
QE2
Eurozone Debt Crisis
2.6
2.5
2.4
Depreciation
2.3
2.2
2.1
2.0
Appreciation
1.9
1.8
Source: CBRT, Bloomberg.
57
Credit Growth
Consumer Loans (Annualized, 4 weeks moving averages, Percent)
70
60
70
BRSA Measures
2010
2011
60
50
50
40
40
30
30
20
20
10
10
0
0
Total Loans (Annualized, 20 days moving averages, FX adjusted, Percent)
120
100
120
2011
2010
100
80
80
60
60
40
40
20
20
0
0
-20
-20
-40
-40
58
Non-Performing Loans
Non-Performing Loans in Turkey
(Percent)
Consumer Loans
Corporate Loans
4.5
5.5
4.0
5.0
3.5
4.5
3.0
4.0
2.5
3.5
2.0
3.0
1.5
2.5
1.0
2.0
Source: CBRT.
Latest Observations: December 23, 2011.
59
Summary





Credit growth and domestic demand continues to moderate with the
tightening in monetary and financial conditions.
The improvement in the current account balance is expected to be more
evident and pronounced in the following months.
Inflation has shown a temporary rise in recent months due to exchange rate
movements, hikes in administered prices, and base effects of unprocessed food
prices.
Inflation will hover above the target and start to decline from May 2012. It
will converge to the target of 5 percent by the end of 2012.
Tightened monetary and financial conditions are expected to contain the
second-round effects.
60
Additional Monetary Tightening



End-year inflation is materialized at 10.45 percent. In order to contain second
round effects under current circumstances, it is important that disinflation
starts sooner than market expectations. In this context, Central Bank of the
Republic of Turkey has delivered an additional monetary tightening since
December 29, 2011.
Additional monetary tightening is mainly implemented via open market
operations. Liquidity provided to the market at the policy rate is reduced
temporarily below the lower bound announced for normal days.
Unsterilized (effective) foreign exchange sales and direct interventions may
also be used as a complementary instrument when necessary. The aim here is
to prevent inflation expectations to be adversely affected from exchange rate
movements detached from fundamentals.
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Additional Monetary Tightening

Additional monetary tightening is intended to be strong, effective and
temporary. The duration of the implementation may vary depending on the
speed at which main factors affecting inflation outlook turn favorable.

Central Bank of the Republic of Turkey will continue to monitor developments
regarding inflation outlook and take the necessary measures in line with the
main objective of price stability.
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Meetings with Bank Economists and Analysts


Bank economists and analysts will have the opportunity to attend the Inflation
Press Conferences that are held on dates and places shown below.
Starting from February, bank economists and analysts can request additional
meetings by communicating via [email protected].
Date
Location
31 January
Istanbul
26 April
Ankara
26 July
Istanbul
24 October
Ankara
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ECONOMIC OUTLOOK and MONETARY POLICY
January 3, 2012
Ankara