Download Formulating Monetary Policy In The Face of Current Global Challenges Turalay Kenç

Formulating Monetary Policy
In The Face of Current Global Challenges
Turalay Kenç
Deputy Governor
October 2, 2012
Contents
• RISING ROLE OF EMES IN THE WORLD ECONOMY
• WHY HAS TURKEY’S MONETARY POLICY BECOME EFFECTIVE?
- TURKEY’S STOCK BALANCES
- RICH MONETARY FRAMEWORK
• MONETARY POLICY RESPONSE AGAINST GLOBAL CHALLENGES
2
RISING ROLE of THE EMEs
3
Share of EMEs in the world GDP has been increasing.
Shares in the World GDP
(%, GDP Based on PPP)
80
70
60
50
40
30
20
Advanced economies
10
Emerging and developing economies
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source: HSBC, World in 2050, January 2012
4
Both stock and flow balances in EMEs are better than those of ACs.
Growth prospects are better.
Unemployment rates in G7 are higher.
Stock balances (Public debt/GDP etc.) are better.
Risk premia are better.
5
Policy space and effectiveness in EMEs are bigger than those of ACs.
Close to zero effective rates in ACs
Constraints to QE policies in ACs (collateral etc.)
High budget deficit and debt stock
Low macroprudential buffers
6
The impact of transmission channels has been weakening.
Trade Channel: Increased trade between EM
Financing Channel: Buffers such as FX reserves,
CCSs and collateral agreements
Expectation Channel: Policy Coordination in EMEs
7
WHY HAS TURKEY’S MONETARY POLICY
BECOME EFFECTIVE?
- TURKEY’S STOCK BALANCES
- RICH MONETARY FRAMEWORK
8
Fiscal dominance continues to decline…
Public Debt Stock
(% of GDP)
80
74
70
67.7
60
59.6
52.7
50
40
46.5
46.1
39.9
40
42.4
39.4
37
35
32
30
20
10
0
Source: Treasury, CBRT
*MTP forecasts (2012-2014)
9
…with significant improvement in its composition.
Average Maturity of Domestic
Borrowing**
Currency Composition
(%)
FX
80
90%
80%
46.3
41.5
37.6 37.2
26.7 29.6 27.2
31.3 33.8 29.1
60.8
60
58.1
50
60%
44.1 44.7
40
50%
30%
53.7
58.5
62.4 62.8
73.3 70.4 72.8
68.7 66.2 70.9
30
20
28
35.3
31.7
14.8
41.9
10
27.7
2006
34
40%
20%
70
2005
70%
(month)
TL
100%
9.4
11.6
10%
*August 2012
Source: Treasury
2012*
2011
2010
2009
2008
2007
2004
2003
2012*
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Source: Treasury, CBRT
2002
0
0%
*August 2012
**Flow data
10
While real sector liabilities are low…
Household Liabilities
Corporate Liabilities
(% of GDP)
(% of GDP)
Brazil
Turkey
Litvania
Slovakia
Hungary
Slovenia
Czech Rep
Poland
Hungary
Latvia
Israel
Italy
Estonia
Belgium
Austria
France
Germany
Greece
Finland
Spain
Sweden
US
S. Korea
Portugal
UK
Ireland
The Netherlands
Denmark
Hungary
UK
Germany
Finland
Germany
Turkey
35.1
France
Greece
Sweden
Austria
Italy
Denmark
Ireland
The Netherlands
Portugal
Spain
0
Source: ECB, CBRT.
Poland
19.0
50
100
150
0.0
20.0
40.0
60.0
80.0
100.0
Source: ECB, CBRT.
11
…housing loans do not pose a risk.
Housing (Mortgage) Loans
(% of GDP)
Turkey
Brazil
Hungary
Poland
Belgium
Italy
Romania
Austria
Estonia
Greece
Germany
Israel
France
Finland
Korea
Luxembourg
Ireland
Spain
Sweden
The Netherlands
Portugal
UK
Denmark
5.6
0
20
40
60
80
100
120
140
Source: ECB, CBRT.
12
Banking sector capital base presents a healthy outlook.
Financial Soundness of the Banking
Sector (%)
Capital Adequacy Ratio
(as of 2011 Q4, %)
20
18
30
1.6
1.4
16.6
25
16
1.2
14
20
1.0
12
10
15
0.8
08
10
06
CAR
04
05
0.6
0.4
Liquidity Index (RHS)
0.2
02
00
00
Source: FSI - IMF, CBRT.
Return on Equity
Latest Observation: June 2012 for Turkey
0.0
Source: CBRT.
13
…as well as the NPL ratios.
NPL Ratios
Financial Soundness of the Banking
Sector (%)
(as of 2011 Q4, %)
12
Growth of Credit Portfolio
Delinquency Rate (RHS)
Coverage Index (Provisions / Non-performing Loans) (RHS)
10
45
6
40
08
5
35
30
06
4
25
3
20
04
15
2.7
2
10
02
1
05
00
Source: FSI - IMF, CBRT.
00
0
*2010
14
FX position of households presents a healthy outlook.
Real Sector FX Assets and Liabilities
Net FX Positions
(%)
(Cumulative Figures, Billion USD)
60
58
56
54
80
12.09
FX Assets / FX Liabilities
12.10
12.11
08.12
60
40
20
52
50
48
0
-20
46
-40
44
-60
42
40
-80
-100
38
-120
36
-140
Households
Source: CBRT.
CBRT
Banking
Public
Corporates
TOTAL
Source: CBRT BOP Statistics.
15
Export diversification continues.
Export Diversification
(Yearly % contribution)
40
Other
North, Central and South America
30
MENA
Europe exc. EU
20
EU
10
0
-10
-20
01-10
Source: Turkstat
04-10
07-10
10-10
01-11
04-11
07-11
10-11
01-12
04-12
Latest Observation: June 2012
16
Exchange rate volatility is low compared to Major EMEs.
Implied Volatility: Major EM Countries vs. Turkey
(12-month, %)
30
Turkey
25
Emerging Economies
20
15
10
5
Source: Bloomberg.
Latest Observation: September 2012
17
Interest rate volatility is also low compared to Major EMEs.
Implied Volatility: Major EM Countries vs. Turkey
(benchmark rates, standard deviation, 20-day moving window)
0.35
0.3
Emerging Economies*
0.25
0.2
Turkey
0.15
0.1
0.05
Source: Bloomberg.
Source: CBRT.
08/12
06/12
04/12
02/12
12/11
10/11
08/11
06/11
04/11
02/11
0
Latest Observation: September, 2012
18
Rich Monetary Framework
Aggregate Demand Management + Liquidity Management
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
FX Liquidity
Management
Reserve
Option
Coefficient
Credit
Growth
FINANCIAL STABILITY
LIQUIDITY
POLICY
19
Markets consider Turkey as an investment grade country.
CDS Rates
(5Y, January 29, 2009=0)
1500
Brazil
Turkey
1200
Spain
Italy
900
Mexico
Portugal
600
Ireland
Belgium
300
Indonesia
0
-300
-600
Source: Bloomberg, CBRT.
Latest Observations: October 1, 2012.
20
Anchored inflation expectations indicate effective monetary policy.
Medium Term Inflation Expectations
(%)
14
Actual CPI
12-month
24-month
IT
12
11.14
10
9.07
8.88
8
7.5
6.5
6
5.5
5
4
5
4
4
2
Source: CBRT.
21
MONETARY POLICY RESPONSE AGAINST
GLOBAL CHALLENGES
22
While ACs’ central banks pumping liquidity…
Policy Rates in Advanced Economies
Liabilities of Major Central Banks
(%)
(% of GDP)
35
6
FED
USA
30
5
Euro Area
ECB
BOJ
Japan
25
4
UK
3
20
2
15
1
10
0
5
Source: Bloomberg
Last Observation: August 2012
Source: Bloomberg
Last observation: August 2012
23
…global stress increases the capital flow volatility.
Capital Inflows to Emerging Markets
(Billion USD)
10
Bond Flows
Borçlanma
Senedi Fonları
Hisse
EquitySenedi
Flows Fonları
8
6
Sources of Volatility
4
 EZ Problems
2
0
 Results of QE Policies
-2
-4
 Risks on energy prices
-6
 US and China growth
-8
040712
230512
110412
290212
180112
071211
261011
140911
030811
220611
110511
300311
160211
050111
-10
Source: EPFR, Bloomberg.
24
Main financial stability concern in 2010 was the current account balance.
Main Sources of
Current Account Deficit Finance*
Current Account Balance
(Seasonally Adjusted, Quarterly Average, Million USD)
2000
(12-months Cumulative, Billion USD)
80
1000
70
0
60
-1000
Portfolio and Short-Term*
FDI and Long-Term**
Current Account Deficit
50
-2000
40
-3000
30
-4000
20
CAB
-5000
10
-6000
CAB (excluding energy)
0
-7000
-10
-8000
1
2
3
2008
4
1
2
3
2009
4
1
2
3
2010
4
1
2011
2007:09
2007:11
2008:01
2008:03
2008:05
2008:07
2008:09
2008:11
2009:01
2009:03
2009:05
2009:07
2009:09
2009:11
2010:01
2010:03
2010:05
2010:07
2010:09
2010:11
2011:01
-20
4
Source: TURKSTAT, CBRT.
•
•
Current account (CA) deficit widened significantly
In contrast to pre-crisis episodes, most of CA deficit
was financed by short-term capital flows
*Short-term capital movements are sum of banking and real sectors' short term
net credit and deposits in banks. Long-term capital movements are sum of banking
and real sectors’ long term net credit and bonds issued by banks and the Treasury.
Source: CBRT.
25
Credit growth was very strong.
Credit Change and CA Deficit / GDP
Total Loan Growth Rates
(13-Week m.a., Annualized, FX Adjusted, Percent)
(12 month cumulative, Percent)
10
14
60
12
8
45
10
30
CA Deficit / GDP
6
8
15
6
4
0
4
2
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
-30
Δ in Credit Stock /
GDP (right axis)
0
2
0
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
-15
Source: CBRT
•
•
Credit growth was very strong
Positive correlation between credit growth and CA deficit
26
Monetary policy aimed to establish rebalancing.
Rising current account deficit
financed by portfolio and short term capital inflows
have increased the risk of a sudden stop
Engineering a soft-landing without hampering the
primary objective of price stability
27
Rich monetary policy framework employed against global risks.
Predominant Policy
Before August 2011
Macroprudential Tightening
After October 2011
Monetary Tightening
28
Interest rate corridor, OMO and RRR were used actively.
13
Interest Rate Corridor
Reserve Requirements
(%)
(%)
Interest Rate Corridor
ISE Repo/Reverse Repo
12
18
The range of RRR
16
Average Funding Rate
11
14
10
12
9
10
8
8
7
6
6
4
5
4
Source: CBRT.
Weighted average RRR
2
0
Source: CBRT.
29
Reserve Option Coefficient is introduced as an automatic stabilizer.
Automatic Stabilizer
Excess Reserve
Coefficient
2,0
1,9
1,7
1,4
1,1
Source: CBRT.
40
45
50 55
60
Amount to be held in FX (%)
30
Deceleration in loan growth has been achieved.
Consumer Loan Growth Rates
Total Loan Growth Rates
(13-Week M.A., Annualized, FX Adjusted, Percent)
(13-Week M.A., Annualized, FX Adjusted, Percent)
Consumer loans (2012)
45
Consumer loans (2007-2011)
Total Credits(2012)
Total Credits (2007-2011)
40
40
35
35
30
30
25
25
20
20
15
15
Week
52
49
46
43
40
37
34
31
28
25
22
19
16
13
10
7
4
52
49
46
43
40
37
34
31
28
25
22
19
16
13
10
0
7
0
4
5
1
5
1
10
10
Week
Source: CBRT.
31
Domestic demand grows at a moderate pace.
Final Domestic Demand and Exports
(Seasonally Adjusted, 2008Q1=100)
115
Export
110
Final Domestic Demand
105
100
95
90
85
80
75
70
1
2
3
2005
4
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
2012
Source: CBRT, Turkstat.
32
Employment continues to increase.
Employment Rate
(%, seasonally adjusted)
46
45
44
43
42
41
40
39
38
37
Source: Turkstat, CBRT
33
Reforms have been introduced to control current account deficit…


Increasing Domestic Savings
•
Sustaining Fiscal Discipline
•
Increasing Household and Firm Savings

Transition to government subsidized New Private Pension Scheme

Regulations on supporting insurance sector
Decreasing Foreign Dependence in Energy
34
..in both structural and conjunctural aspects.


Increasing competitiveness, diversity of goods and markets
•
New Incentive System
•
Input Provision Strategy (GİTES)
•
Diversifying export markets
Increasing the quality of financing
•
Encouraging long-term savings
•
Supporting corporate (firms and banks) bond issuance
•
Diversifying government debt instruments: Rent Certificates
•
Tax incentives for Private Participation Capital and Venture Capital Funds
35
Therefore, rebalancing continues.
Current Account Balance
(12-month cumulative, Billion USD)
90
80
MTP December 2012 Forecast
70
60
50
40
30
20
10
0
Source: CBRT, Turkstat
36
Inflation is expected to converge to target in 2013.
Inflation
(%, yearly change)
14
Actual CPI Inflation
SCA-I Change
CBRT Year-End Forecast
IT
12
10
8.88
8
7.17
6
6.2
5
4
2
09.12
05.12
01.12
09.11
05.11
01.11
09.10
05.10
01.10
09.09
05.09
01.09
09.08
05.08
01.08
09.07
05.07
01.07
09.06
05.06
01.06
0
Source: CBRT.
37
Formulating Monetary Policy
In The Face of Current Global Challenges
Turalay Kenç
Deputy Governor
October 2, 2012