Download External Impact of US Monetary Policy on Emerging Markets

ExternalImpactofUSMonetaryPolicy
onEmergingMarkets
SeminarconvenedbytheEuropeanEconomicsandFinancial
Centre(London) atPalaceofWestminster
September09,2015
UncertaintiesFacedbytheGlobalEconomy


Theglobaleconomycurrentlyfacesheighteneduncertainty
intwoimportantareas:
1)
growthprospectsofdifferentregionsandeconomies
2)
paceofthenormalization ofglobalmonetarypolicies
(1)ismoreimportantthan(2)
1)
GrowthinmostEMEshassloweddown,withworseningprospects
•
forthosewithgreaterfinancialstabilityconcernsand
•
forthosefacingadverserelativepriceshocksfromthesubstantial
declinesintheirexportedcommodityprices.
2
UncertaintiesFacedbytheGlobalEconomy
2)
The strengtheninggrowthoutlookinAEsmaynot
continuewithouttheexistingpolicysupport,
includingMP.

Theglobaleconomyalsosuffersfromariskof
secularstagnation.

MonetaryauthoritiesinAEshavebeencarefully
calibratingpolicyactions
•
abalancebetweenpolicystimulusandfinancial
excesses.
3
MonetaryPoliciesinAEs

Withthese policychallengesinmindcentralbanksthat
areexpectedtonormalizeearlierthanothershavesofar
followedacautiouspolicystance.

Inaddition,theabruptandexcessivemarketreactions
experiencedduringthetaperingtantrumhaveforced
centralbanks toclearlycommunicatetheirpolicy
strategiesincludingthetimingandpaceoftheiractions.

This,ofcourse,reflectsthefactthatchangesin the low
interestrateandriskpremiaenvironmentwouldleadto
greaterchangesinpricesandhencegreatermarket
reactions.
4
Recent Global Economic andFinancial
Market Developments

Volatilityinglobalfinancialmarketsspikedin
reaction tomarketdevelopmentsinChina
particularlytothedevaluationof the Renminbi.

Thisisessentiallydrivenbyuncertaintyonthe
paceoftheslowdowninChinaanditsimpacton
theglobaleconomy.

Ofcourse,itmagnifiesuncertaintyassociatedwith
themarketimpactofthepossibleFedratelift‐off
decision.
5
MonetaryPoliciesinAEs

Despiteheightenedvolatilityinmostfinancialmarkets, including
stock,commoditiesandexchangerate markets,bondsmarketshave
stayedrelativelycalmwithmuch lowerincreasesinliquidityandprice
volatilityindices.

Atthisconjuncture,inTurkeywehostedB20,G20ministerialand
variousBISmeetings.

Allofthesemeetingsservedasplatformsforsharingmarket
experiences,economicoutlooksandrespectivepolicyresponses.

Andofcourse,G20memberstateministersandgovernorsengaged in
lengthydiscussionstoreachaconsensusviewofthe globaleconomic
outlookandrespectivepolicyactionsbyeachmembercountry.
6
TheG20Communiqué

"...willcontinuetomonitordevelopments,assessspillovers and
addressemergingrisksasneededtofosterconfidenceandfinancial
stability."

"...willrefrainfromcompetitivedevaluations."

"...willalsocarefullycalibrateandclearlycommunicate,especiallyour
majormonetarypolicyactions,tominimisenegativespillovers,
mitigateuncertaintyandpromotetransparency."

"...butmonetarypolicyalonecannotleadtobalancedgrowth."

"...pledgedtotakedecisiveactiontokeeptheeconomicrecoveryon
trackandweareconfidenttheglobaleconomicrecoverywillgain
speed."
7
PortfolioFlowstoEmergingMarkets
CapitalFlowProxy
Source: Bloomberg, CBRT Calculations
(*) Emerging markets : Brazil, India, South Africa, Indonesia, Mexico, Poland, Hungary and Turkey
Bloomberg Capital Inflow Index: 0.1*SPGSCI Index+0.3* MSCIEM Index+0.3*EMBI Index+0.3*FX CarryTrade Index
8
Investorshavebeendifferentiating among EMEs.
Cumulative Equity and BondFlows in2015
(US$million)
Source:EPFR
Source: EPFR
9
PortfolioFlowstoTurkey
Source: CBRT
10
NetInternationalIssuancesofEMCompanies
Source: Sobrun and Turner (2015)
11
EMcurrencieshavedepreciatedsignificantly.
Indollarsperunitoflocalcurrency.
Source: Sobrun and Turner (2015)
12
RecentvolatilitylevelsofEMcurrenciesarestillbelowthelevels
reachedduringtheEurozonesovereignbondcrisis.
CurrencyVolatility(3MImpliedVolatility)
Source: Bloomberg
Emerging Economies: Turkey, South Africa, Brazil, Indonesia, Mexico, Russia, Colombia,, Poland, Czech Republic, Romania
13
EMsovereignandlocalcurrencybondyieldshavebeen
relativelystable.
EM10YearBondYields
(3MRollingAverageofAbsoluteDailyChanges)
Source: Bloomberg.
(*) Emerging markets : Brazil, India, South Africa, Indonesia, Chile, Colombia, Mexico, Poland, Czech Republic, Romania and Turkey 14
InflationratesinEMEshavebeendiverging.
InflationRatesin EMEs
Source: Bloomberg
15
RealpolicyratesinEMEshavebeendiverging.
RealPolicy(Effective)Ratesin EMEs
Source: Bloomberg
16
FundamentalsandPoliciesRequiredDuring the
Normalization ofGlobalMonetaryPolicies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools
17
FundamentalsandPoliciesRequiredDuring the
Normalization ofGlobalMonetaryPolicies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools
18
GDPcontinuestogrowatamoderatepace.
Contribution to Annual GDP Growth
(Percentage Points)
20
Change in Inventories
Net Exports
Final Domestic Demand
GDP
15
10
5
0
‐5
Source: TURKSTAT
03/15
12/14
09/14
06/14
03/14
12/13
09/13
06/13
03/13
12/12
09/12
06/12
03/12
12/11
09/11
06/11
03/11
12/10
09/10
06/10
03/10
‐10
Last Observation: 2015 Q1
19
FundamentalsandPoliciesRequiredDuring the
Normalization ofGlobalMonetaryPolicies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools
20
Food andenergypricedevelopmentshelp disinflation intheshortrun…
(Annual Percentage Change)
13
12
CPI
H
I
11
10
9
8
7
6
5
4
Source: TURKSTAT
08/15
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
12/11
10/11
08/11
3
Last Observation: August 2015.
21
…whileexchangeratemovementsdelaytheimprovementin
thecoreindicators.
Core Inflation Indicators H and I
(Seasonally adjusted, Annualized 3‐Month‐Average, Percent)
16
H
14
I
12
10
8
6
4
2
Source: TURKSTAT, CBRT
08/15
05/15
02/15
11/14
08/14
05/14
02/14
11/13
08/13
05/13
02/13
11/12
08/12
05/12
02/12
11/11
08/11
05/11
02/11
0
Last Observation: August 2015.
22
The decline inimport prices limits the pass‐through from
exchange rates to domestic inflation.
Import Price Index
(2010=100)
260
240
220
Import Prices (TL)
200
180
160
140
120
Import Prices (USD)
100
80
60
0110
Source: TURKSTAT, CBRT
0810
0311
1011
0512
1212
0713
0214
0914
0415
Last Observation: July 2015.
23
FundamentalsandPoliciesRequiredDuring the
Normalization ofGlobalMonetaryPolicies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools
24
Thefavorableimpactofloweroilpricesonthecurrentaccount
balancewillbemorepronouncedintheforthcomingperiod.
Energy Imports
(12‐Month Cumulative, Billion USD)
65
60
55
50
45
40
35
Source: TURKSTAT
0715
0415
0115
1014
0714
0414
0114
1013
0713
0413
0113
1012
0712
0412
0112
1011
0711
0411
0111
1010
0710
0410
0110
30
Last Observation: July 2015.
25
ExportstotheEUcontinuetogrowineuro terms.
Exports to European Union
(12 months cumulative, billion Euros)
60
55
50
45
40
35
Source: TURKSTAT
0715
0115
0714
0114
0713
0113
0712
0112
0711
0111
0710
0110
0709
0109
0708
0108
0707
0107
30
Last Observation: July 2015. 26
Recently exports showed some recovery inreal terms..
135
130
125
120
115
110
105
100
export (excluding gold)
95
import (excluding gold)
90
1
2
3
2010
Source: CBRT
4
1
2
3
2011
4
1
2
3
2012
4
1
2
3
2013
4
1
2
3
2014
4
1
2
2015
Last Observation: 2015 Q2. 27
Currentaccountbalancehasimprovedmarkedlysince2011and
furtherimprovementisexpectedinthe forthcoming period.
Current Account Balance (CAB)
(12‐Month Cumulative, Billion USD)
‐30
‐35
CAD
‐40
CAD (Excluding gold)
‐45
‐50
‐55
‐60
‐65
‐70
Source: CBRT
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
12/11
10/11
08/11
06/11
04/11
02/11
12/10
‐80
10/10
‐75
Last Observation: June 2015.
28
Currentaccountdeficitislargelyfinancedthroughlongterm
borrowingandFDI.
(12‐Months Cumulative, Billion USD) Portfolio and Short Term**
FDI and Long Term*
CAD
85
75
65
55
45
35
25
15
5
Source: CBRT
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
12/11
10/11
08/11
06/11
04/11
02/11
12/10
10/10
‐5
*Long term inflows are sum of banking and real sectors’ long term net credit and bonds issued by banks and the Treasury. Short term capital movements are sum of banking and real sectors' short term net credit and deposits in banks.
Last Observation: June 2015.
29
Halfofthe corporateforeigncurrency debt hasmore
than three‐year maturity.
Maturity Structure of External Liabilities of the Corporate Sector
(Percent Share)
09.14
03.15
06.15
0‐1 Year
1‐2 Years
28,6
29,2
19,3
21,8
20,7
18,7
2‐3 Years
14,2
14,8
15,5
17,5
15,5
17,2
16,6
13,2
17,7
17,3
18,1
22,0
28,5
33,4
03.14
3‐5 Years
5 Years +
Source: CBRT, External Debt Statistics of Non‐Financial Corporate Sector
30
Loanvolumescontinuetoexpandatareasonablepacedueto
cautiousmonetarypolicystanceandmacroprudentialmeasures.
Total Loan Growth Rate
(Year on Year Change, Percent)
40
35
30
25
20
15
Source: CBRT
07/15
05/15
03/15
01/15
11/14
09/14
07/14
05/14
03/14
01/14
11/13
09/13
07/13
05/13
03/13
01/13
11/12
09/12
07/12
05/12
03/12
01/12
11/11
09/11
07/11
05/11
03/11
01/11
10
Last Observation: August 28, 2015.
Total loan is inclusive of all types of banks (deposit banks, participation banks, and development/investment banks) and credit cards.
Adjusted for exchange rate.
31
Measures to Support Financial Stability:
SupportingTurkishLiraCoreLiabilities

The remuneration rate of Turkish lira required reserves may be revised to
reduce the intermediation cost of banking sector and to support core liabilities.
Credit/Deposit Ratio (Percent)
130
130
120
120
110
110
100
100
90
90
Announcement of Required Reserve
Measures in Financial Stability Report
80
80
70
Source: BRSA 0914
1114
0115
0315
0515
0715
0913
1113
0114
0314
0514
0714
0912
1112
0113
0313
0513
0713
0911
1111
0112
0312
0512
0712
0910
1110
0111
0311
0511
0711
0110
0310
0510
0710
70
Last Observation: August 07, 2015. 32
NPLratiosforFXcorporateloanshavebeendeclining.
NPL Ratios For Corporate Loans
(Percent)
5,0
Total Corporate
TL
FX
4,5
4,0
3,5
3,1
3,0
2,5
2,1
2,0
1,5
1,0
0,9
0313
0413
0513
0613
0713
0813
0913
1013
1113
1213
0114
0214
0314
0414
0514
0614
0714
0814
0914
1014
1114
1214
0115
0215
0315
0415
0515
0615
0,5
Source: CBRT Financial Stability Report, No:20
Last Observation: June 2015.
33
FundamentalsandPoliciesRequiredDuring the
Normalization ofGlobalMonetaryPolicies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools
34
ReserveRequirementPolicies
FX liquidity will be released via reserve requirement policies (before and during
normalization).
CBRT Reserves (Billion USD )
FX for FX RR
140
CBRT Other FX Reserve
ROM FX
CBRT Other Gold Reserves
Gold for Precious Metal
ROM Gold
120
100
80
60
40
20
Source: CBRT
07/15
05/15
03/15
01/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
05/13
03/13
01/13
11/12
09/12
07/12
05/12
03/12
01/12
11/11
0
09/11

Last Observation: July 31, 2015. 35
Measures to Support Financial Stability:
LengtheningtheMaturityofNoncoreFXLiabilities
FX required reserve ratios for newly originated FX noncore liabilities of the banks
will be adjusted to encourage further maturity extension (before and during).
Maturity Breakdown of Non‐Core FX Liabilities (Percent)
60
Required Reserve Measures
55
Up to 1-Year
50
45
40
Longer than 3-Years
35
Source: CBRT
07/15
06/15
05/15
04/15
03/15
02/15
01/15
12/14
11/14
10/14
09/14
08/14
07/14
06/14
05/14
04/14
03/14
02/14
30
01/14

Last Observation: July 31, 2015. 36
FXLiquidity Measures:ForeignExchangeDepositMarket

Borrowing limits on foreign exchange deposit accounts will be
increased (before normalization).

After the planned change, the size of the FX liquidity that the
financial system can access from CBRT, which is the sum of FX
holdings in ROM and limits of the foreign exchange deposit
market, will be considerably above the external debt payments
of the banks in the coming year.
37
Measures to Support Financial Stability:
RemunerationofFXRequiredReserves
The remuneration rate of the USD denominated required reserves, reserve options and free
reserves held at the CBRT will be held close to the upper end of the Fed funds target rate range
(before and during normalization).
Euro USD
Deposit Rate (EUR) (%)
Deposit Rate (USD) (%)
5
5
Remuneration Rates Applied To Req. Res. in
USD (%) (Right Axis )
4,5
4,5
4
2,5
2,5
Commission Rates Applied to Accounts in EUR (%)
(Right Axis)
2
2
4
3,5
3,5
3
1,5
1,5
3
2,5
2,5
2
2
1,5
1
1
0,5
0,5
1,5
1
1
0
0
0,5
Source: CBRT
‐0,5
0915
0815
0715
‐0,5
0615
0915
0815
0715
0
0615
0
0515
0,5
0515

Last Observation: September 7, 2015. 38
FundamentalsandPoliciesRequiredDuring the
Normalization ofGlobalMonetaryPolicies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools
39
PolicyBuffers

Amplefiscalpolicyspace:
•
verylowbudgetdeficit, aswellasprimarysurplus
•
lowpublicdebttoGDPratio

Amplemonetarypolicyspace

Amplemacroprudential policy space
40
FundamentalsandPoliciesRequiredDuring the
Normalization ofGlobalMonetaryPolicies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools
41
TheRoadMapDuringtheNormalization ofGlobalMonetaryPolicies
Liquidity
Management
Simplification
•More narrow,more symmetric interest rate
corridor
•Restriction onfunding to primary dealers
•More simplified collateral conditions
FXLiquidity
Measures
•Flexible FXselling auctions
•Adjustments inrequired reserve and Reserve
Options Mechanism conditions
•Measures onFXdeposit market
Measures to
Support Financial
Stability
•Lengthening the maturity ofnoncore FX
liabilities
•Supporting core liabilities inTurkish Lira
•Remuneration ofFXrequired reserves
42
TheRoadMapDuring theNormalization ofGlobalMonetaryPolicies
Policy Measure
Timing
Interest RateCorridor
During Normalization
Funding
Before Normalization
CollateralConditions
BeforeandDuringNormalization
FlexibleFXSellingAuctions
BeforeNormalization
ReserveOptions
Before and During Normalization
MeasuresonFXDepositMarket
Before Normalization
LengtheningtheMaturityofNoncoreFX
Liabilities
BeforeNormalization
SupportingTLCoreLiabilities
Before and During Normalization
RemunerationofFXRequiredReserves
Before and During Normalization
43
The liquidity policy hasbeen tight and will befurther
tightened aslong asdeemed necessary.
Interest Rates
(Percent)
13
Interest Rate Corridor
CBRT Average Fund Rate
BIST Interbank Market O/N Rates
One‐Week Repo Rate
13
Source: CBRT
09/15
08/15
07/15
06/15
05/15
04/15
02/15
03/15
01/15
3
12/14
3
11/14
4
10/14
4
09/14
5
08/14
5
07/14
6
06/14
6
05/14
7
04/14
7
02/14
03/14
8
01/14
8
12/13
9
11/13
9
10/13
10
09/13
10
08/13
11
07/13
11
06/13
12
05/13
12
Last Observation: September 7, 2015. 44
Yieldcurvehasbeen invertedduetotightliquiditypolicy.
Interest Rates
(Percent)
5‐Year Market Rate
12
3‐Month Market Rate
12
10
10
8
8
6
6
4
4
5 year‐3 month spread
Source: CBRT
08/15
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
‐2
12/11
‐2
10/11
0
08/11
0
06/11
2
04/11
2
Last Observation: September 7, 2015.
45
Commercialloansgrowatafasterpacethanconsumerloans,contributingto
pricestability,financialstabilityandtherebalancingprocess.
Loan Growth Rates 50
50
(Annual Percentage Change)
45
45
40
40
35
35
30
30
Commercial
25
25
20
20
15
15
Consumer
10
10
Source: CBRT
0715
0515
0315
0115
1114
0914
0714
0514
0314
0114
1113
0913
0713
0513
0313
0113
1112
0912
0712
0512
0312
0112
1111
0911
0711
0511
0311
0111
1110
0910
0710
0
0510
0
0310
5
0110
5
Last Observation: August 28, 2015.
Inclusive of loans extended by all types of banks (deposit banks, Participation banks, and development/investment banks). FX adjusted.
46
FXLiquidity Measures:Flexible FXSale Auctions
Flexibility of FX sale auctions is increased to contain exchange rate volatility.
FX Sale Auctions
(Million USD )
120
1200
Monthy Quantity of FX Sales* (Right Axis)
Daily FX Sales
100
1000
80
800
60
600
40
400
20
200
0
Source: CBRT 09/15
08/15
07/15
06/15
05/15
04/15
03/15
02/15
01/15
12/14
11/14
10/14
09/14
08/14
07/14
0
06/14

*The value for September is as of September 7, 2015.
Last Observation: September 7, 2015. 47
Thankyou!
SeminarconvenedbytheEuropeanEconomicsandFinancial
Centre(London) atPalaceofWestminster
September09,2015