Download Presentation before the Council of Ministers Erdem Başçı Governor

Presentation before the Council of
Ministers
Erdem Başçı
Governor
November 14, 2011
Outline
I.
Global Problems
II. Policy Tools
III. Price Stability
IV. Financial Stability
2
Outline
I.
Global Problems
II.
Policy Tools
III. Price Stability
IV. Financial Stability
3
Turkey and US
135
GDP
Unemployment
(Real, 2007=100)
(Percent)
Turkey
US
12
130
US
Turkey (right hand side)
15
14
10
125
13
8
120
12
115
6
11
110
10
105
4
9
100
2
8
95
90
0
Source: IMF WEO, CBRT.
*Medium Term Program projections used for Turkey, other country
projections are based on IMF data.
7
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 hand side)
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 hand side)
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 Japan
GDP
Unemployment
(Real, 2007=100)
(Percent)
5,5
135
Turkey
Japan
15
Japan
Turkey (right hand side)
130
14
5,0
125
13
120
4,5
12
115
110
11
4,0
105
10
100
3,5
9
95
90
3,0
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
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, TURKSTAT, CBRT.
*Difference of natural logs.
8
Labor Participation: Turkey and US
Labor Participation Rate*
(Percent)
67
51
US
66,5
Turkey (right hand side)
49
66
47
65,5
45
65
43
64,5
41
64
39
63,5
63
37
Source: TURKSTAT, BLS, CBRT.
*Seasonally adjusted
9
Employment: Turkey and US
Total Employment*
(Million people)
117
24,5
US
Turkey (right hand side)
23,5
115
22,5
113
21,5
111
20,5
19,5
109
18,5
107
17,5
105
16,5
Source: TURKSTAT, BLS, CBRT.
*Seasonally adjusted
10
Leading Indicators
EU and Turkey
Purchasing Managers Index (PMI)
65
65
Turkey
EU
60
60
55
55
50
50
45
45
40
40
35
35
30
30
25
25
Source: Bloomberg.
11
Housing Prices (US)
Case-Shiller Home Price Indices
(Jan 2000 = 100)
220
200
180
160
140
120
100
Source: Bloomberg, CBRT.
12
Outline
I.
Global Problems
II. Policy Tools
III. Price Stability
IV. Financial Stability
13
Policies against the Crisis
Policies in Advanced Economies;
1. Monetary Expansion
•
Extending long term credits to banks
•
Bond buying programs known as Quantitative Easing
2. Moving away from Fiscal Discipline
•
Soaring public spending
•
Fall in tax revenues
14
Monetary Expansion (US)
Excess Reserve (FED)
(Billion USD)
1800
1600
1400
1200
1000
800
600
400
200
0
Source: FED, CBRT.
15
Monetary Expansion (UK)
(Billion Pound)
Excess Reserve* (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 Reserve* (ECB)
500
450
400
350
300
250
200
150
100
50
0
Source: ECB, CBRT.
*Excess Reserves=ECB Balance Sheet Deposit Facility + Fixed Term Deposits
17
Monetary Expansion (Japan)
Excess Reserve (BoJ)
(Billion Yen)
30000
25000
20000
15000
10000
5000
0
Source: BoJ, CBRT.
18
Policies Against the Crisis
Policies in Emerging Economies;
1. Monetary Discipline
•
Controlled monetary incentives
•
Measures against short term inflows
2. Strengthening the Fiscal Discipline
•
Cautious public spending
•
Rise in tax revenues
19
Monetary Expansion (Turkey)
Excess Reserve* (CBRT)
(Billion TL)
60
50
40
30
20
10
0
Source: CBRT.
* Note: Excess Reserves =Sterilization through ON Borrowing + Banking Sector Free Deposit - Banking Sector Required Reserves
20
Policies Against the Crisis
Policies Against Short Term Capital Flows
(Emerging Economies)
Contrary to the global monetary expansion trends ,
emerging economies should provide incentives for
financial inflows with a tendency towards;

More equity, less debt,

More domestic currency, less foreign currency,

More long term, less short term.
21
Policy Tools
Fiscal Policy
Monetary
Policy
Financial Sector
Policy
Primary Surplus
Policy Rate
Capital Adequacy
Budget Deficit
Interest Rate Corridor
Liquidity Adequacy
Public Debt
Required Reserves
Loan/Value
Arrangement
Reserve Policy
FX Depo Market
22
FISCAL POLICY
23
Primary Balance
Primary Balances of Selected Economies
(Ratio to GDP, percent, 2010)
4
2
0
-2
-4
-6
-8
-10
Source: IMF WEO, CBRT, Ministry of Development.
2011 forecast for Turkey taken from MTP.
24
Budget Deficit (Advanced Economies)
Budget Deficit
(Ratio to GDP, percent, 2010)
11
9
7
5
3
1
-1
Source: IMF WEO, CBRT, Ministry of Development
2011 forecast for Turkey taken from MTP.
25
Public Debt (Advanced Economies)
Public Debt
(Ratio to GDP, percent, 2010)
160
140
120
100
80
60
40
20
0
Source: IMF WEO, CBRT, Ministry of Development
2011 forecast for Turkey taken from MTP.
26
Budget Deficit (EM Economies)
Budget Deficit
(Ratio to GDP, percent, 2010)
Source: IMF WEO, CBRT, Ministry of Development
2011 forecast for Turkey taken from MTP.
27
Public Debt (EM Economies)
Public Debt
(Ratio to GDP, percent, 2010)
Source: IMF WEO, CBRT, Ministry of Development
2011 forecast for Turkey taken from MTP.
28
MONETARY POLICY
29
Policy Rate
Definition
• 1 week repo
rate
• Main policy
tool
Impact Channel
• Market rates
employed by banks
and other financial
institutions
• Credits provided by
banks, prices of
equities and other
financial assets,
foreign exchange
Timing
• Set in monthly
Monetary Policy
Committee (MPC)
meeting
• One week repo
auctions opened
daily.
• Auction amount
determined at
10.00 am.
30
Interest Rate Corridor
Definition
• CBRT
overnight
borrowing and
lending rate
interval
• Borrowing 5%
• Lending 12.5%
Impact Channel
• Short term rates in
the secondary
market
• FX rates
• Credit growth
Timing
• Interest rate
corridor set in
monthly MPC
meeting.
31
Required Reserves
Definition
• The cash amount
that banks are
required to hold at
the CBRT against
the deposits and
other liabilities.
Impact Channel
• Credit growth
rates
• Deposit terms
• FX and gold
reserves of
CBRT
Timing
• Determined by
CBRT
communiques.
• The frequency of
change is at least
14 days.
32
Reserve Policy
Definition
• Daily
purchase/sales
auctions
• Direct intervention
Impact Channel
• FX volatility
• CBRT can
intervene the
markets through
purchases or sales
in case of
unhealthy price
formations are
observed.
Timing
• Daily auction amount
announced at 11:00
am.
• Offers received from
banks between 13:40
– 14:00.
33
FX Deposit Market
Definition
• CBRT acts as an
intermediary in
order to increase
the FX liquidity in
the market.
Impact Channel
• Banks with excess
liquidity provide
FX liquidity to the
banks which need
it.
• Facilitates external
borrowing for
banks in the times
of distress.
Timing
• Established following
the Lehman crisis on
October 9, 2008 and
operated for 2 years.
• Re-established as of
November 10, 2010.
34
Policies Against Short Term Capital Inflows
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
35
The Policy Mix
CBRT Policy Rate and
Interest Rate Corridor
25
TL Reserve Requirement Ratios (RRR)
O/N Lending-Borrowing Interest Rate Corridor
1-week Repo Rate
20
Adoption of 1 week repo rate as
the policy rate
15
10
5
0
Source: CBRT.
Source: CBRT.
36
FX Reserves of the CBRT
FX Reserves of the CBRT
(Including gold, million USD)
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
Source: CBRT.
37
Gold Reserves of the CBRT
Gold Reserves of the CBRT
(Million USD)
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Source: CBRT
38
The Policy Mix
Policy Dimension
Current Stance
1. Fiscal Policy
Neutral
2. Policy Rate
Accommodative
3. Liquidity Policy
Non-Accommodative
4. Financial Sector Policy
Non-Accommodative
Net Policy Stance
Non-Accommodative
39
Policy Rates in Turkey and other EMs
Policy Rates in Inflation Targeting EM Economies
(Percent)
20
Emerging Economies
Turkey
18
16
14
12
10
8
6
4
Source: Bloomberg, CBRT.
EM Countries include: Brazil, Mexico, Poland, Indonesia, S.Africa, Thailand, Czech R., Colombia, Hungary, Romania, Philippines.
40
Real Interest Rates (Policy)
(%)
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
Source: Bloomberg, CBRT.
* Year-end inflation targets for Turkey are taken from October Inflation Report , others from Consensus Forecast.
41
Real Interest Rates (1 Year Bonds)
(%)
25
20
15
10
5
0
-5
Source: Bloomberg, CBRT.
* Year-end inflation targets for Turkey are taken from October Inflation Report , others from Consensus Forecast.
42
Interest Rates (10 Year Bond, Euro denominated)
(%)
30
25
20
15
10
5
0
Source: Bloomberg, CBRT.
43
Monetary Expansion (US-Turkey)
(Million TL)
(Million USD)
1800000
50000
US
1600000
Turkey (right hand side)
45000
40000
1400000
35000
1200000
30000
1000000
25000
800000
20000
600000
15000
400000
10000
200000
5000
0
0
Source: FED, CBRT
44
Capital Adequacy Ratios
Capital Adequacy Ratios
(2010)
(%)
20
18
16
Basel II
Adequacy
Ratio
14
12
10
8
6
4
2
0
Spain
Greece
Source: IMF , CBRT.
Italy
India
Korea
US
UK
Germany
Brazil
Turkey
45
Outline
I.
Global Problems
II.
Policy Tools
III. Price Stability
IV. Financial Stability
46
Inflation Comparison
Inflation in Turkey and Emerging Markets
(Percent)
30
30
25
25
20
20
15
15
Turkey
10
10
5
5
EM Economies*
0
0
Source: Bloomberg, CBRT
*EM countries include Brazil, Mexico, Czech R., Hungary, Poland, S.Africa, China, India, Russia
47
Inflation and Monetary Policy Outlook
Inflation and Output Gap Forecasts
Forecast Range*
Uncertainty Band
Year-End Inflation Targets
Output Gap
Assuming that annual rate of credit growth
decelerates gradually, and monetary
conditions are tightened significantly in the
final quarter in line with the policy measures
taken in October, inflation is expected to be,
with 70 percent probability,
12
10
Control
Horizon
8
4
 between 7.8 and 8.8 % (with a midpoint of 8.3 %) at the end of 2011,
2
0
 between 3.7 and 6.7 % (with a midpoint of 5.2 %) at the end of 2012,
-2
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
-4
09-10
Percent
6
 stabilize around 5 % in the medium
term.
* Shaded region indicates the 70 percent confidence interval for the forecast.
48
Outline
I.
Global Problems
II.
Policy Tools
III. Price Stability
IV. Financial Stability
49
Excess Borrowing
Growth Rates of Private Sector Credits
(Percent, 2010)
45
40
35
30
25
20
15
10
5
0
-5
-10
Source: IMF, World Bank, CBRT.
50
Saving Rates
Saving Rates in Selected Countries
(Percent of GDP, 2010)
60
50
40
30
20
10
0
Source: IMF WEO, CBRT.
51
Composition of Savings
Saving Rates in Turkey
(Percent of GDP)
30
Public
Private
Total
25
20
15
10
5
0
-5
-10
Source: Ministry of Development, CBRT.
52
Balance of Payments
Current Account Balance
(Seasonally Adjusted, Monthly Average, Million USD )
3000
2000
1000
0
-1000
-2000
-3000
-4000
-5000
-6000
Current Account
Current Account (Excluding Energy)
-7000
-8000
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
Source: TURKSTAT, CBRT.
*July and August figures are realization, September and Q4 figures are forecast.
4
1
2
3
2010
4
1
2
3*
4*
2011
53
Composition of Capital Flows
Main Sources of Current Account Deficit Finance
(12-months Cumulative, Billion USD)
80
80
Portfolio and Short-Term*
FDI and Long Term
Current Account Deficit
CBRT Measures
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
-10
-10
-20
-20
Source: CBRT.
*Short-term capital movements are sum of banking and real sectors' short term net credits and deposits in banks.
54
Exchange Rates
Value of TL and Other EM Currencies against USD
(11 November 2010=1)
1,4
Global Sell-off
CBRT Measures
1,3
1,2
Depreciation
TL
1,1
1
0,9
EM average includes: Brazil, Chile, Czech R., Hungary, Mexico, Poland, S.Africa, Indonesia, Korea and Colombia.
Source: CBRT, Bloomberg.
Appreciation
EM Average
55
Exchange Rate Volatility
FX Volatility
(Percent, implied volatility for the next 12 months)
30
25
EM Economies
Turkey
20
15
10
5
Source: Bloomberg, CBRT.
EM average includes Brazil, Chile, Colombia, Mexico, Poland, Hungary, Czech R., S.Africa, Indonesia, Korea and Turkey.
56
Credit Growth
Consumer Loans
(Annualized, percent, 4 weeks moving averages)
70
RRR
Hikes
60
BRSA
Measures
50
40
30
20
10
2010
2011
2006-2010 Average
0
Source: CBRT.
57
De-dolarizarion of Loans
FX Loan Growth
(Annualized, percent, 20 days moving average)
140
140
120
120
100
100
2010
80
60
80
60
2006-2010 Average
40
40
20
20
0
0
-20
-20
2011
-40
Source: CBRT.
-40
58
Non-Performing Loans
Non-Performing Loans of Banking Sector
(percent)
4,5
4,0
5,5
Consumer Loans
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
Corporate Loans
Source : CBRT
59
Overview
•
Economic recovery that started after the global crisis of 2008 continues at a
strong pace in Turkey.
•
Economic recovery in advanced economies still falters.
•
High public debt and budget deficit problems experienced in the advanced
economies put downside risks on the growth of global economy.
•
Quantitative easing engineered in advanced economies as a quick solution for
their problems leads to increased volatility in short-term capital flows to
emerging economies.
•
In Turkey, measures taken during the last year aiming to reduce short term
capital flows have been successful to a large extent.
60
Overview

The upward trend of current account deficit has been taken under control
starting from the last quarter of 2011.

The quality of current account deficit financing continues to improve.

Structural reforms aiming to rise the saving rates and reduce the export
dependence of energy sector will bring a permanent solution to the current
account deficit problem provided they are implemented as outlined in
Medium Term Program.

Tax increases that aim to control current account deficit in the short term
have raised the inflation figure in the last months of 2011.

As a result of the implemented tight monetary policies, we expect inflation to
decline starting from early 2012 and reach to 5 percent target level at the end
of the next year.
61
Presentation before the Council of
Ministers
Erdem Başçı
Governor
November 14, 2011