Download The Turkish Experience

The Turkish Experience
Bank of Indonesia and IMF Joint Conference on
Coping with Asia’s Large Capital Inflows in a Multi-Speed
Global Economy
Erdem Başçı
Deputy Governor, Central Bank of Turkey
March 11, 2011
Bali, Indonesia
1
Quantitative Easing vs. Quantitative Tightening
•
Quantitative easing in major economies has continued in response
to weakness in economic activity and heightened sovereign risks,
resulting in dramatic increases in central banks’ balance sheets.
•
Facing huge influx of capital, some developing countries have
resorted to quantitative macroprudential tightening, even capital
controls.
•
Turkey has also initiated quantitative tightening, starting from
April 2010.
2
Appreciation Pressure
EM currencies against USD*
(4 Jan 2010=1)
1.15
1.10
1.05
1.00
0.95
EM Average
0.90
06-10
07-10
08-10
09-10
10-10
11-10
12-10
01-11
02-11
03-11
*Average of emerging market currencies, including Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South
Korea and Colombia.
Source: Bloomberg, CBRT
3
Two Approaches
•
Approach 1: Use capital account measures to restrict inflows
while tightening via interest rates (Brazil, South Korea)
•
Approach 2: Use macroprudential measures to restrict domestic
credit and domestic demand while keeping the short term interest
rate differentials as low as possible (Turkey)
4
-15
Greece
Spain
Turkey (2010*)
Italy
India
United States
Turkey (2009)
France
Poland
Brazil
Czech Rep.
United Kingdom
Indonesia
Japan
Korea
China
Saudi Arabia
Thailand
Taiwan
Malaysia
Current Account Balance
Current Account Balance
(2009, percent of GDP)
20
15
10
5
0
-5
-10
* IMF WEO Estimate
Source: IMF, CBRT
5
Phases in Monetary Policy
•
Phase-1: Full Liquidity Support (after the collapse of Lehman
Brothers, September 2008)
•
Phase-2: Monetary Exit Strategy (April 2010)
•
Phase-3: New Policy Mix (starting from November 2010)
6
Liquidity after Monetary Exit
Central Bank Liquidity
(billion TRY)
Weekly Repo Funding
3-month Repo Funding
Sterilization through ON Borrowing
Net Liquidity Provided
30
20
10
0
-10
-20
01-09
04-09
07-09
10-09
01-10
04-10
07-10
10-10
01-11
Source: ISE, CBRT
7
Price Stability after Monetary Exit
Goods and Services Inflation
(year-on-year change, percent)
18
16
Goods
14
12
10
8
6
4
Services
2
0
04
05
06
07
08
09
10
11
Source: TurkStat, CBRT
8
Financial Stability: Objectives
1. Debt Ratios: Use of more equity, more prudent borrowing
2. Debt Maturities: Extending maturities of domestic and foreign
borrowing and deposits
3. FX Positions: Strengthening FX positions of public and private
sectors
4. Risk management: More effective management of exchange rate
risk via instruments such as the Turkish Derivatives Exchange
9
Macroprudential Tools
•
Under the current economic conditions, it may not be possible to
simultaneously ensure price stability and financial stability by means of
policy rates alone.
•
Solution: Using macroprudential tools in coordination with other public
authorities.
•
Macroprudential tools:
1. Reserve requirements
2. Liquidity management
3. Capital adequacy ratios
4. Liquidity adequacy ratios
5. Taxes
6. Primary expenditures of government
10
Tools (in the order of priority):
For Financial Stability:
For Price Stability:
1. Required Reserve Ratios
1. Short Term Interest Rates
2. TRY Liquidity Management
2. TRY Liquidity Management
3. Short Term Interest Rates
3. Required Reserve Ratios
11
Two Targets, Two Instruments
Accelerating
Inflation
Policy Response
Policy Response
Policy Rate
Macroprudential tools
Policy Rate
Macroprudential tools
Price
Stability
TARGET
Decelerating
Policy Response
Policy Response
Inflation
Policy Rate
Macroprudential tools
Policy Rate
Macroprudential tools
Decelerating Credit Growth
Financial Accelerating Credit Growth
Stability
12
The New Policy Mix
A lower policy rate, a wider interest rate corridor and higher
reserve requirements
•
The framework we adopt in spirit is not significantly different from the
conventional inflation targeting framework.
•
The only difference is that, previously our policy instrument was the one
week repo rate, but now our instrument is a “policy mix”
•
We seek to use these instruments in the right combination in order to cope
with both inflation and macro-financial risks.
•
The monetary policy stance in this framework is not only determined by the
path of policy rates, but as a combination of all the policy instruments.
13
Effectiveness of Required Reserves
1. Liquidity Channel (wider corridor)
2. Cost Channel (no remuneration)
14
The Policy Rate and the Interest Rate Corridor
Policy Rate and Interest Rate Corridor
(percent)
25
20
Interest Rate Corridor
15
10
5
Policy Rate
0
01-08
05-08
09-08
01-09
05-09
09-09
01-10
05-10
09-10
01-11
Source: CBRT
15
Reserve Requirements as a Macroprudential Tool
Reserve Requirement Ratios
(percent)
14
Demand deposit
12
10
Up to 1 Month
End of remuneration
1-3 Months
8
3-6 Months
6-12 Months
6
Longer than 1 year
4
2
07-09
10-09
01-10
04-10
07-10
10-10
01-11
Source: CBRT
16
Reserve Requirements as a Macroprudential Tool
Current RRR
(percent)
Change in RRR Since the Start of the Crisis
(percentage point)
25
8
6
Increases
20
20
19.5
4
15
2
11
0
9.5
10
9.5
8
3.5
3.5
Russia
5
Poland
6
-2
-4
Decreases
India
Indonesia
Peru
Turkey (TRY)
Turkey (FX)
China
Poland
India
Turkey (FX)
Russia
Indonesia
Peru
China
Turkey (TRY)
Brazil
Source: Central Banks, CBRT
Brazil
0
-6
Source: Central Banks, CBRT
17
Measures by Other Authorities
1. Fiscal discipline
2. No FX loans to households
3. Domestic currency bond market
4. Loan/value restrictions
5. Tax hikes on certain consumer loans
6. Restrictions on credit card borrowing
18
Tightening the Liquidity
Reserve Requirements Balances
(billion TRY)
60
The new reserve requirements as of Feb 18, 2011
(approx. 10 billion TRY)
50
40
TRY required reserves
30
20
10
FX Required Reserves
0
01-09
04-09
07-09
10-09
01-10
04-10
07-10
10-10
01-11
Source: CBRT
19
Volatility in Money Markets
Overnight Interest Rates
(percent)
11
Swap Rates
(percent)
9
10
CBRT Lending Rate
9
One year
8
7
Policy Rate
8
6
7
5
6
4
5
One month
3
Overnight Interest
Rate
4
2
3
1
2
CBRT Borrowing Rate
1
08-10
09-10
Source: ISE, CBRT
10-10
11-10
12-10
01-11
02-11
Overnight
0
06-10
08-10
10-10
12-10
02-11
Source: Reuters, CBRT
20
Appreciation Pressure
EM currencies against USD*
(4 Jan 2010=1)
1.15
1.10
1.05
1.00
0.95
EM Average
0.90
06-10
07-10
08-10
09-10
10-10
11-10
12-10
01-11
02-11
03-11
*Average of emerging market currencies, including Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South
Korea and Colombia.
Source: Bloomberg, CBRT
21
Initial Impact on Currency
TRY and other EM currencies against USD*
(4 Jan 2010=1)
1.15
TRY
1.10
1.05
1.00
0.95
EM Average
0.90
06-10
07-10
08-10
09-10
10-10
11-10
12-10
01-11
02-11
03-11
*Average of emerging market currencies, including Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South
Korea and Colombia.
Source: Bloomberg, CBRT
22
Initial Impact on Currency
Real Effective Exchange Rate
(CPI-based, against developing countries, 2003=100)
130
120
Long Term Average
110
100
90
80
2004
2005
2006
2007
2008
2009
2010
2011
Source: CBRT
23
Exports
Goods Exports
(year-on-year percentage change)
80
Leading
Indicators
60
Avg. 39%
40
20
Avg. 9%
0
-20
-40
Avg. -26%
-60
01-08
04-08
07-08
10-08
01-09
04-09
07-09
10-09
01-10
04-10
07-10
10-10
01-11
Source: TurkStat, Turkish Exporters Assembly, CBRT
24
Credit Growth
Household Loans
(year-on-year change, percent)
Total Loans
(annualized monthly change, percent)
80
60
Average of last 5 years
Other Consumer
Loans
60
Latest Period
50
Difference
Housing Loans
40
40
30
20
20
0
10
-20
0
Auto Loans
Source: CBRT
February
January
01-11
December
07-10
November
01-10
October
07-09
September
01-09
August
-10
07-08
July
-40
01-08
Source: CBRT
25
QT and Inflation Expectations
Yield Curve*
(percent)
9.5
Inflation Expectations*
(percent)
10
Mar 2, 2011
9.0
9
12-month forward
8.5
8
8.0
7
7.5
6
Oct. 1, 2010
24-month forward
7.0
5
6.5
4
12-07
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
* Calculated from the compounded returns on bonds quoted in ISE Bills and Bonds
Market by using ENS method.
Source: ISE, CBRT
06-08
12-08
06-09
12-09
06-10
12-10
* CBRT Expectations Survey results from the second survey period.
Source: ISE, CBRT
26
The Turkish Experience
Bank of Indonesia and IMF Joint Conference on
Coping with Asia’s Large Capital Inflows in a Multi-Speed
Global Economy
Erdem Başçı
Deputy Governor, Central Bank of Turkey
March 11, 2011
Bali, Indonesia
27