Download G3 National Monetary Policies Convergence and Multiple Spillover Effects November 1, 2013

G3 National Monetary Policies Convergence and
Multiple Spillover Effects
November 1, 2013
Shanghai, China
Case for Unconventional Monetary Policy
 Economy
requires lower long run rates
R_L =Time Preference Rate + Expected Growth Rates + …
 Declining
expected growth rates
-> Lower R_L
 Short
rates at the lower bound
-> Unconventional MP
2
Digression on short and long run rates
 In
most cases long run rates are most
relevant rates for economies
 Short
rates are also relevant for
economies with a sizeable of shadow
banking system
-> Excessive maturity, credit and liquidity
transformation
3
Unconventional Monetary Policies
 Conventional
MP: Policy rates
 Unconventional
MP
 Forward
guidance on expected policy rates
 Balance
sheet policies - asset purchases

Quantitative easing

Qualitative easing

Credit easing and funding
4
Unconventional Monetary Policies
 Policies
targeting long-run rates
R_L = Average R_s + Term Premium
 Forward
 Asset
guidance via average R_s
purchases via term premium
 Policies
targeting credit volume
 Funding
for lending programmes
5
Quantitative Easing - Asset Purchases
 Policies
targeting term premium
 Portfolio
balance channel
 Liquidity
channel
 Signalling
 Yield
channel
channel – “surge for yield”
6
Effects of Quantitative Easing
 Asset
pricing effects
1.
Volatility level
2.
Market price of risk – risk premium
(Main channel)
7
Long rates indeed came down a lot!
10 Year US Govn. Bond Yields
(2008-2013, Percent)
6
QE1
16 months
QE2
20 months
QE3
12 months +
5
4
3
2
1
0
Source: Bloomberg.
Last observation: October 02, 2013
8
Capital flows have become volatile recently.
Equity and Bond Flows to Emerging Markets
(Billion USD, 4-Week Moving Sum)
35
30
Bonds
25
Equities
20
15
10
5
0
-5
-10
-15
-20
Source: EPFR.
Last Observation: April 3, 2013.
9
04/13
03/13
02/13
01/13
12/12
11/12
10/12
09/12
08/12
07/12
06/12
05/12
04/12
03/12
02/12
01/12
12/11
11/11
10/11
09/11
08/11
07/11
06/11
05/11
04/11
03/11
02/11
01/11
-25
Cross border effects
 Economically
and financially an integrated
global world:
1.
Trade linkages
2.
Funding channel
3.
Expectations channel
10
Trade Channel
 Worst
performance of world trade volume
 Trade
finance
 Protectionism
 World

production model - Supply chain
Global imbalances are shrinking fast
 Structural
vs. cyclical
11
Policy collaboration
12
Funding Channel
 Excessive
 Short
term flows
 Portfolio

capital flows
flows
Impacts
 Appreciated
 Lowered
exchange rates
interest rates
 Increased
credit growth
13
Capital inflows to Turkey.
Main Sources of Current Account Deficit Finance
(12-Month Cumulative, Billion USD)
100
Portfolio*
Other
CAD
80
60
40
20
0
-20
Source: CBRT.
*Portfolio includes equities and domestic government bonds.
Last Observation: August 2013.
14
Turkish Case: Appreciated Currency Episodes
CPI Based Real Effective Exchange Rate
(Base Year: 2003)
140
130
120
110
100
90
80
Source: CBRT.
Last Observation: September 2013.
15
Turkish Case: Lower Interest Rates
Interest Rate Corridor and Average Funding Rate
(Percent)
20
QE2
18
16
14
RR
Hikes
Eurozone Debt
Crisis
QE3
OMT
TS*
Lehman
Crisis
12
Adoption of 1-week repo
rate as the policy rate
10
8
6
O/N Lending - Borrowing Interest Rate Corridor
4
1-week Repo Rate
2
BIST O/N Rate (10-day MA)
Average Funding Rate
0
Source: BIST, CBRT.
*TS: Tapering Signal
Last observation: October 31, 2013
16
Turkish Case: Rapid Credit Growth Episode
Total Loan Growth Rates*
(FX Adjusted, YoY Change, Percent)
45
40
35
30
25
20
15
10
Source: TCMB.
*Total credit is inclusive of all types of banks (deposit banks, participation banks,
and development/investment banks) and credit cards.
Last observation: September 29, 2013
17
Financial condition is main driver.
Financial Conditions Index and Change in Credit
(Ratio to GDP, Percent)
2,0
14
Financial Conditions Index
Δ Credit/GDP (right axis)
1,5
12
easier
1,0
10
0,5
tighter
0,0
8
-0,5
6
-1,0
-1,5
4
-2,0
2
-2,5
-3,0
0
1
2
3
2006
Source: CBRT.
4
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2
3
2010
4
1
2
3
2011
4
1
2
3
2012
4
1
2
3
2013
Last Observation: 2013Q1
18
Expected reversal…
10 Year US Govn. Bond Yields
(2013, Percent)
3
Bernanke’s Speech
2,5
2
FOMC September Meeting
FOMC June Meeting
1,5
1
Source: Bloomberg.
Last observation: October 02, 2013
19
…and its impacts: Greater share of EMEs in the global
economy…
Share in the Global Economy (%, PPP based)
70
Advanced economies
Emerging market economies
60
50
40
30
20
10
0
2003
2004
Source: IMF WEO Database
2005
2006
2007
2008
2009
2010
2011
2012
Last Observation: 2012
20
…and its impacts: Better balances and prospects for
EMEs.

Better stock balances
•


lower indebtedness
Better flow balances
•
favourable dynamics
•
strong fundamentals
•
higher growth
•
lower imbalances
Policy space and improved policy efficacy
 Hence better prospects for return and risk
21
…and its impacts: Turkish Case…
Turkish Case: GDP
(Base Quarter: 2008Q1, Seasonally Adjusted, Natural Logarithms)
4,80
4,75
4,70
4,65
4,60
4,55
4,50
4,45
4,40
1
2
3
4
2005
Source: TurkStat, CBRT.
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2
3
2010
4
1
2
3
2011
4
1
2
3
2012
4
1
2
2013
Last Observation: 2013Q2
22
…and its impacts: Home bias in equities is declining
but still high…
Home Bias Measures in equities across developed countries
Source: Coeudacier and Rey (2011)
23
…and its impacts: Home bias in fixed income is high…
Home Bias Measures in bonds across ACs
Source: Coeudacier and Rey (2011)
24
…and its impacts: Riskiness of EMEs declined and their
sovereign ratings rose…
Net Number of Rating Changes since 2008 (Increases - Decreases)
100
% 34
80
60
40
20
0
-20
% 38.8
-40
-60
-80
-100
AEs
Source: Bloomberg
EMEs
Last Observation: As of 2012, Moody’s, S&P and Fitch Ratings ratings.
25
…its impacts: Capital account balances are driven by private
borrowing…
Turkish Case: Public and Private Sector External Debt
(Ratio to GDP, Percent)
60
Public
Private
50
40
30
20
10
0
Source: CBRT.
Last Observation: 2013Q2
26
…its impacts: Increased external safety nets.
Turkish Case: FX and Gold Reserves
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Source: CBRT
Last Observation: October 205, 2013
27
Thousands
(Billion USD)
Macroprudentioal policy


Capital flow management often requires

Unconventional monetary policy

Macroprudential policies
Impact on credit growth
 More
of macroprudential measures
28
Monetary and macro-prudential policies
in Turkey
INSTRUMENTS
CREDIT
POLICY
KEY INDICATORS
OBJECTIVES
Reserve
Requirement
Reserve
Option
Coefficient
PRICE STABILITY
(Primary Objective)
INTEREST
RATE POLICY
Expectations
Weekly Repo
Rate
TL Liquidity
Management
Interest Rate
Corridor
OMO and
Effective
Funding Rate
LIQUIDITY
POLICY
FX Liquidity
Management
Credit
Growth
FINANCIAL STABILITY
REER
Reserve
Option
Coefficient
29
Independent monetary policy
 Monetary
policy separates between
 Aggregate
 Liquidity
 Monetary
 Home
demand management
management
policy separates between
currency liquidity management
 Foreign
currency liquidity management
30
Unconventional monetary policy
 Separation
I.
1.
Rate on reserves and another rate
2.
Interest rate corridor policy
 Separation
II.
1.
Official reserve accumulation policy
2.
Private reserve accumulation system
31
Interest corridor policy in Turkey
Interest Rate Corridor, Average Funding Rate,
and O/N Repo Rates in the Money Market (Percent)
14
Interest Rate Corridor
Average Funding Cost
Policy Rate
Overnight Repo Rates (10 day MA)
14
Source: CBRT.
03/13
02/13
01/13
12/12
11/12
10/12
09/12
08/12
07/12
06/12
05/12
0
04/12
0
03/12
2
02/12
2
01/12
4
12/11
4
11/11
6
10/11
6
09/11
8
08/11
8
07/11
10
06/11
10
05/11
12
04/11
12
Last Observation: April 10, 2013.
32
Lending - Deposit Rate Spread
16
7
6,5
15
6
5,5
14
Spread (right axis)
13
5
4,5
4
12
3,5
Commercial Loan Rates
3
11
2,5
Source: CBRT.
03/13
02/13
01/13
12/12
11/12
10/12
09/12
08/12
07/12
06/12
05/12
04/12
03/12
02/12
01/12
12/11
11/11
10/11
09/11
08/11
2
07/11
10
Last Data: March 29, 2013.
4 Weeks MA
33
Reserve Options Mechanism (ROM)
Utilization of ROM (FX)
(Percent)
ROC for FX*
60
2,0
2,2
2,3
2,4
2,5
2,7
2,8
1,9
1,9
2,1
2,2
2,3
2,4
2,6
2,7
1,7
1,7
1,7
1,9
2,0
2,1
2,2
2,4
2,5
1,4
1,4
1,4
1,6
1,7
1,8
1,9
2,1
2,2
1,5
1,7
1,8
50
Upper Bound
Utilization Ratio
70
60
1,4
40
50
1,5
30
40
20
1
1
1
1
1,1
1,3
1,4
1,4
1,4
30
1,4
1,4
10
20
1
10
Source: CBRT.
07.06.13
10.05.13
12.04.13
07.12.12
09.11.12
12.10.12
31.08.12
03.08.12
06.07.12
22.06.12
11.11.11
14.10.11
30.09.11
0
0
30.09.2011
28.10.2011
25.11.2011
23.12.2011
20.01.2012
17.02.2012
16.03.2012
13.04.2012
11.05.2012
08.06.2012
06.07.2012
03.08.2012
31.08.2012
28.09.2012
26.10.2012
23.11.2012
21.12.2012
18.01.2013
15.02.2013
15.03.2013
12.04.2013
1
Source: CBRT.
*In terms of holding periods.
34
Source: CBRT.
25
30
2
2,2
2,3
2,4
2,5
1,5
1,7
1,8
1,9
2
20
1,5
1,3
1,4
1,4
0
28.10.2011
25.11.2011
23.12.2011
20.01.2012
17.02.2012
16.03.2012
13.04.2012
11.05.2012
08.06.2012
06.07.2012
03.08.2012
31.08.2012
28.09.2012
26.10.2012
23.11.2012
21.12.2012
18.01.2013
15.02.2013
15.03.2013
12.04.2013
1,2
12.04.13
1
01.03.13
1
04.01.13
1
21.12.12
1,5
14.09.12
1
20.07.12
5
13.04.12
11.11.11
ROM
ROC for Gold*
Utilization of ROM (Gold)
(Percent)
30
Upper Bound
Utilization Ratio
35
25
15
20
15
10
10
5
0
*In terms of holding periods.
Source: CBRT.
35
Macro-prudential policies in Turkey
 Capital adequacy
 dividend restriction policy
 risk weighting policy – higher weights for consumer loans
 capital charges on larger maturity mismatches
 Provisions – higher rate on consumer loans
 Lending policy
 guidance on annual loan growth rate
 limits to credit card payments
 ban on consumer FX lending
 Reserve requirements
 maturity related measures
 leverage related measure
 LTV caps for residential and commercial property loans
 DTI
36
G3 National Monetary Policies Convergence and Multiple
Spillover Effects
November 1, 2013
Shangai, China