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Contents
1.
2.
3.
4.
5.
6.
7.
OVERVIEW
1
1.1. Monetary Policy Developments and Monetary Conditions
1
1.2. Macroeconomic Developments and Main Assumptions
3
1.3. Inflation and Monetary Policy Outlook
6
1.4. Risks and Monetary Policy
7
INTERNATIONAL ECONOMIC DEVELOPMENTS
11
2.1. Global Growth
12
2.2. Commodity Prices
14
2.3. Global Inflation
16
2.4. Financial Conditions and Risk Indicators
16
2.5. Global Monetary Policy Developments
19
INFLATION DEVELOPMENTS
23
3.1. Inflation
23
3.2. Expectations
30
SUPPLY AND DEMAND DEVELOPMENTS
35
4.1. Gross Domestic Product Developments and Domestic Demand
35
4.2. External Demand
39
4.3. Labor Market
42
FINANCIAL MARKETS AND FINANCIAL INTERMEDIATION
51
5.1. Financial Markets
51
5.2. Financial Intermediation and Loans
61
PUBLIC FINANCE
75
6.1. Budget Developments
75
6.2. Developments in the Debt Stock
79
MEDIUM-TERM PROJECTIONS
83
7.1. Recent Monetary Policy Decisions
83
7.2. Current State of the Economy, Short-Term Outlook and Assumptions
84
7.3. Medium-Term Outlook
88
7.4. Risks and Monetary Policy
91
Box 3.1. Additional Tariffs on Clothing Imports and Possible Impacts on CPI
32
BOXES
Box 4.1. Changing Trends in the Labor Market
45
Box 5.1. Credit Expansion and the Current Account Deficit
67
Box 5.2. Effects of Decisions on Required Reserves
70
Box 7.1 Designing and Communicating the New Monetary Policy Approach by the CBRT
94
Central Bank of the Republic of Turkey
1.Overview
The global economy continued to recover in the first quarter of 2011,
while the divergence between growth dynamics of advanced and emerging
economies continued. Downside risks in advanced economies remain critical,
causing these economies to maintain expansionary monetary policies, while
domestic demand remains strong in emerging economies amid capital inflows.
The divergence between advanced and emerging economies accelerates
capital inflows to countries like Turkey, with strong economic fundamentals and
relatively low risk. Rapid credit expansion and widening current account deficit
fueled by short-term capital inflows feed risks to financial stability and may
hamper price stability over the medium term, hence giving rise to adopting
different approaches that incorporate financial stability into the monetary
policy framework.
1.1. Monetary
Conditions
Policy
Developments
and
Monetary
In order to restrain macro financial risks in the domestic economy posed
by the global imbalances, the Central Bank of the Republic of Turkey (CBRT)
designed and launched a new policy strategy by the end of 2010. The new
policy approach preserves the main objective of achieving and maintaining
price stability while also observing financial stability as a supporting objective. In
this context, in addition to policy rates, complementary tools such as reserve
requirement ratios and the interest rate corridor are jointly utilized.
The downtrend in inflation during the last quarter of 2010 allowed the
CBRT to give relatively more weight to financial stability during this period. In this
respect, the CBRT lowered policy rates in order to reduce short-term capital
inflows, and widened interest rate corridor (the difference between overnight
lending and borrowing rates) in order to raise the short-term interest rate
volatility. In addition, required reserve ratios were raised to slow down credit
expansion. Moreover, in order to enhance financial stability by extending
maturity
of
the
banking
sector
liabilities,
reserve
requirements
were
differentiated by maturities, with higher reserve requirements for short-term
liabilities. These measures reduced the net short-term capital inflows and
stopped the acceleration of the credit growth.
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
In the first quarter of 2011, both the faster-than-expected increases in oil
prices and the robust domestic demand necessitated a more cautious stance
regarding the inflation outlook. In particular, oil prices hovering significantly
above the January Inflation Report's assumptions led to an increased cost
pressures. Moreover, the ongoing rapid growth of private consumption and
private investment spending increased the need to slow down domestic
demand growth in order to contain the second round effects of the surge in oil
and other commodity prices.
Even though inflation reached the historically low level of 4 percent in the
first quarter, the CBRT has acted with a medium-term perspective, highlighting
the upside risks to inflation since February. Accordingly, in order to eliminate the
possibility of a deterioration in the general pricing behavior, the CBRT adopted
a stronger monetary tightening during the first quarter than envisaged in the
January Inflation Report's baseline scenario. Within this framework, policy rate
has been kept constant since February, while the weighted average of the
reserve requirement ratios for Turkish lira liabilities was hiked by 410 basis points in
March and April. Hence, the policy mix composed of policy rates and reserve
requirement ratios has been adjusted to deliver a monetary tightening, thus
implying a more cautious monetary stance (Chart 1.1.1)
Chart 1.1.1. CBRT Policy Mix
CBRT Policy Rates
TL Required Reserve Ratios
Maximum and Minimum Reserve Requirement Ratios
O/N Lending - Borrowing Interest Rate Corridor
Weighted Average Reserve Requirement Ratio
1-week Repo Rate
25
18
16
Adoption of 1-week repo
rate as the policy rate
20
14
12
15
10
8
10
6
4
5
2
0
Source: CBRT.
0411
0111
1010
0710
0410
0110
1009
0709
0411
0111
1010
0710
0410
0110
1009
0709
0409
0109
1008
0708
0408
0108
0
Source: CBRT.
Although credit growth slowed quarter-on-quarter in the first quarter,
credit growth rate is still above plausible levels with respect to financial stability.
Due to the lagged effects of the ongoing monetary tightening, loan utilization is
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
expected to slow further in the second quarter. Interest rates in Bonds and Bills
Market soared up during the first quarter across all maturities, with medium-term
real interest rates having increased about 150 basis points since the previous
reporting period. The increases in market rates and the cost effects due to
reserve requirement hikes are expected to have lagged effects on loan rates.
Indeed, deposit and loan rates have been increasing lately. All these
developments indicate that the effects of the policy mix have been
increasingly more restrictive at the turn of the second quarter of 2011.
1.2.
Macroeconomic
Assumptions
Developments
and
Main
The October 2010 Inflation Report highlighted that the rise in inflation
should be attributed to developments in unprocessed food and tobacco prices
that are completely beyond CBRT's control, and indicated that inflation would
decline rapidly in the following months. In fact, during the subsequent two
quarters, inflation declined by 5.2 percentage points and dropped to 4 percent
as of March, reaching the lower bound of our January forecast (Chart 1.2.1).
Chart 1.2.1.
January 2011 Inflation Forecasts and Realizations
Forecast Range*
Year-End Inflation Targets
Uncertainty Band
Actual Inflation
12
10
Percent
8
6
4
2
1213
0913
0613
0313
1212
0912
0612
0312
1211
0911
0611
0311
1210
0910
0610
0310
1209
0
* Shaded region indicates the 70 percent confidence interval for the forecast.
The rapid decline in inflation was mainly owed to the waning base effects
from unprocessed food, energy and tobacco prices as well as the favorable
course of services prices (Chart 1.2.2). On the other hand, the sharp increase in
import prices and the depreciation of the Turkish lira caused core inflation to
accelerate. In fact, the rate of change across all subcategories of CPI, except
core goods, remained below past year averages during the first quarter
(Chart 1.2.3).
Inflation Report 2011-II
3
Central Bank of the Republic of Turkey
Chart 1.2.2.
Chart 1.2.3.
Contribution to Annual CPI Inflation
CPI by Subcategories
(Percentage Points)
(First-Quarter Percent Change)
Core Goods*
Tobacco and Gold***
14
Services
Food and Energy**
2006-2010 Average
12
2011
10
12
8
10
6
8
4
2
6
0
4
-2
2
-4
-6
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
1207
0
Food
Energy Tobacco Core Services
and
Goods*
Gold***
CPI
* Core Goods: Excluding food, energy, alcoholic beverages, tobacco and gold.
** Food and Energy: Food and non-alcoholic beverages and energy.
*** Tobacco and Gold: Alcoholic beverages, tobacco and gold.
Source: TurkStat, CBRT.
Supply and Demand Developments
The fourth-quarter GDP have been compatible with the outlook
presented in the January Inflation Report. The third-quarter slowdown turned out
to be temporary as expected and economic activity displayed a robust growth
in the last quarter. The post-crisis divergence between domestic and external
demand growth became more pronounced in this period, confirming the need
to adopt the new policy mix.
2011 first quarter data indicate that the economic activity is more robust
than expected with the support of the domestic demand. Accordingly, the
revised forecasts are based on the assumption that aggregate demand
conditions would provide less support for disinflation compared to the previous
period. However, given that capacity utilization rates are below and
unemployment rates are above the pre-crisis levels, aggregate demand
conditions are assumed not to exert a significant inflationary pressure as of the
first quarter of 2011.
Revisions to Assumptions
Since global economy continues to grow in line with expectations,
projections for Turkey's export-weighted growth index remained broadly
unchanged. Therefore, assumptions regarding external demand conditions
were not subject to any major revisions that may affect inflation forecasts.
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
On the other hand, assumptions about oil and other import prices were
revised significantly upward. In the January Inflation Report, oil prices were
assumed to average 95 USD/bbl in 2011 and beyond. Moreover, in reference to
futures prices for commodities, import prices were assumed to increase by an
average of 10.9 percent year-on-year in 2011. However, particularly due to
supply-side
developments,
oil
and
other
commodity
prices
remained
considerably above our assumptions. In this context, using futures prices of the
first half of April, the oil price assumption for 2011 and onward is raised to 115
USD/bbl. Furthermore, import prices are assumed to increase by 16.2 percent
year-on-year in 2011. These changes in assumptions led to an upward revision of
about 50 basis points for end-2011 inflation forecast and a slight upward revision
for 2012 inflation forecast.
Another factor affecting 2011 inflation forecasts has been the hike in
tariffs on fabric and apparel imports. Although major uncertainties exist about
how this development will be reflected on prices, it is assumed that this would
add to year-end inflation by about 50 basis points (Box 3.1).
As for the food prices, despite the recent benign course, given the
extreme volatility in unprocessed food prices and the rapid increases in
agricultural commodity prices, food inflation assumption for end-2011 has been
cautiously preserved at 7.5 percent.
In sum, due to developments such as soaring energy prices and renewed
tariffs which are beyond the monetary policy control, the mid-point of the end2011 inflation forecast is revised up by 1 percentage point.
Fiscal Policy
Inflation forecasts are produced based on the Medium Term Program
(MTP) projections. Since primary expenditures remained largely in line with the
MTP targets in the first quarter, the fiscal policy outlook remained mainly
unchanged. Hence, our forecasts are based on the assumption that the ratio of
primary expenditures to GDP would continue to decline gradually. We also
assume that the debt-to-GDP ratio would decline further, and the risk premium
would remain broadly unchanged over the forecast horizon. Furthermore, it is
assumed that tax adjustments would be consistent with inflation targets and
automatic pricing mechanisms.
Inflation Report 2011-II
5
Central Bank of the Republic of Turkey
1.3. Inflation and Monetary Policy Outlook
Within the new policy framework, changes in monetary policy stance can
be implemented not only through policy rates, but also through market liquidity
conditions and required reserve ratios. The issue of how and which policy tools
would be employed to change the policy stance depends on factors affecting
financial stability and price stability. Given the high level of uncertainty
regarding the global economic conditions in the period ahead, it would be
more appropriate to remain flexible regarding the content of the policy mix.
Therefore, the monetary policy stance underlying inflation forecasts will
continue to be communicated using the term 'monetary tightening' rather than
by explicitly stating the individual course of each instrument.
Against this background, assuming an additional limited monetary
tightening during the second half of 2011 that would bring credit growth to 2025 percent at the end of 2011, inflation is expected to be, with 70 percent
probability, between 5.6 and 8.2 percent with a mid-point of 6.9 percent at the
end of 2011, and between 3.4 and 7.0 percent with a mid-point of 5.2 percent
at the end of 2012. Inflation is expected to stabilize around 5 percent in the
medium term (Chart 1.3.1).
Chart 1.3.1.
Inflation and Output Gap Forecasts
Forecast Range*
Year-End Inflation Targets
Uncertainty Band
Output Gap
12
10
Control
Horizon
8
Percent
6
4
2
0
-2
-4
0314
1213
0913
0613
0313
1212
0912
0612
0312
1211
0911
0611
0311
1210
0910
0610
0310
-6
* Shaded region indicates the 70 percent confidence interval for the forecast.
The revised forecasts suggest that keeping inflation in line with targets
over the medium term requires a measured and vigorous credit growth. Hence,
in addition to inflation forecasts, a numerical range for the annual rate of credit
growth is also provided in order to give a better perspective. It should be
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
underlined that these numbers for the credit growth rates are not strict targets
of the CBRT. The nominal credit growth consistent with the medium-term
inflation target may vary from year to year depending on the course of inflation,
economic growth and the composition of aggregate demand.
Over the next three quarters, inflation is expected to display significant
fluctuations mainly due to base effects driven by food prices. Annual food
inflation is expected to rise in the second quarter, decline in the third quarter,
and increase markedly in the last quarter. As shown in Chart 1.3.1, headline
inflation path also reflects these fluctuations.
The main reason for inflation forecast to overshoot the end-2011 target of
5.5 percent is the sharp rise in import prices as mentioned above. The impact of
the cumulative increases in commodity prices since October 2010 on 2011
inflation is estimated to reach around 90 basis points (40 basis points of this
impact is reflected in the October Inflation Report forecasts while the remaining
50 basis point is reflected in the current Report). In addition, tariff adjustments
are assumed to bring 2011 inflation up by about 50 basis points. Therefore, the
reason for end-2011 forecast to exceed the inflation target can be attributed to
developments completely beyond the control of the monetary policy.
Accordingly, the statement following the April meeting of the Monetary Policy
Committee (the Committee) indicated that the Committee would not respond
to the first round effects of rising oil and other commodity prices, but highlighted
that second round effects will be closely monitored and a deterioration in the
pricing behavior will not be tolerated.
It should be emphasized that any new data or information regarding the
inflation outlook may lead to a change in the monetary policy stance.
Therefore, assumptions regarding the monetary policy outlook underlying the
inflation forecast should not be perceived as a commitment on behalf of the
CBRT.
1.4. Risks and Monetary Policy
The impact of the ongoing monetary tightening on credits and domestic
demand is expected to be more significant starting from the second quarter.
However, the extent and the timing of the impact may vary depending on the
developments beyond the control of the monetary policy. The CBRT will closely
Inflation Report 2011-II
7
Central Bank of the Republic of Turkey
monitor the lagged effects of the policy measures, and will take additional
measures if deemed necessary.
In assessing risk factors and the related monetary policy measures under
current circumstances, both price stability and financial stability are taken into
account. Therefore, risk factors are not only assessed with respect to their
impact on the level, but also on the composition of the aggregate demand
(external versus domestic demand). This is because the level of the aggregate
demand concerns price stability, whereas its composition relates directly to
financial stability. Hence, risk factors regarding global economy are also
evaluated against this backdrop.
Downside risks regarding global economy remain critical, albeit having
been alleviated compared to the previous quarter. Problems in credit, real
estate and labor markets in many advanced economies are yet to be fully
solved. Moreover, uncertainties regarding debt sustainability issues and the
impact of a possible fiscal consolidation persist. Furthermore, rapid increases in
oil prices carry the potential to slow down global economic growth. All these
factors continue to feed downside risks regarding the pace of global growth.
The possibility of a prolonged period of slow global growth not only creates
downside risks regarding the external demand, but also keeps prospects for
strong capital flows vigorous. Should such a scenario materialize, a policy mix of
low policy rate, wide interest rate corridor and high reserve requirement ratios
may be implemented for a long period of time. Moreover, an outcome
whereby global economic problems intensify and contribute to a contraction
of domestic economic activity may require an easing in all policy instruments.
Although downside risks to global economy remain notable, upside risks
are also becoming more significant. Major uncertainties exist regarding the
lagged impacts of the exceptionally loose monetary policies implemented by
advanced economies on global economic activity and inflation. If the global
economy faces a faster-than-expected recovery in the upcoming period,
inflationary pressures may arise sooner than envisaged in the advanced
economies. Materialization of such a scenario would mean a tightening by
using policy rates as well as reserve requirements against higher global policy
rates and demand-pull inflationary pressure.
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
The outlook for oil and other commodity prices remains uncertain. Should
the increases in commodity prices persist and hamper the achievement of
medium-term inflation targets, an additional tightening may be implemented
sooner than envisaged by the baseline scenario. However, given that higher oil
prices will also deteriorate the current account balance, macro financial risks
will also be monitored through the policy reaction. Therefore, the content of the
policy mix may vary depending on the outlook for other factors such as external
demand, capital flows and the credit growth.
The CBRT will continue to monitor fiscal policy developments closely while
formulating monetary policy. Inflation forecasts in the baseline scenario assume
that the ratio of fiscal expenditures to GDP will evolve in line with the MTP
targets. A revision in the monetary policy stance may be considered should the
fiscal stance deviate significantly from this framework, and consequently, have
an adverse effect on medium-term inflation outlook. Increasing public savings,
and hence, sustaining fiscal discipline is essential under current circumstances in
order to control risks fuelled by the widening current account deficit driven by
the divergence between domestic and external demand. Saving the
additional tax revenues provided by the stronger-than-expected economic
activity than envisaged by the MTP would not only ease risks regarding both
price stability and the financial stability, but also, enhance the efficiency of the
new policy mix.
Monetary policy in the period ahead will continue to focus on building
price stability on a permanent basis. To this end, the impact of the
macroprudential measures taken by CBRT and other institutions on the inflation
outlook will also be assessed carefully. Fulfilling the commitment to maintain
fiscal discipline and strengthening the structural reform agenda in the medium
term would contribute to the improvement of Turkey’s sovereign risk, and thus,
enhance macroeconomic stability and the price stability. Maintaining fiscal
discipline will also provide more room for monetary policy maneuver and
support the social welfare by keeping interest rates permanently at low levels. In
this respect, timely implementation of the structural reforms envisaged by the
MTP and the European Union accession process remains to be critical.
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
2. International Economic Developments
The global economy continued to recover in the first quarter of 2011 as
expected. The contribution of public spending and inventory build-up slowed,
yet rising private demand continue to drive growth in advanced economies.
Meanwhile, emerging economies grow further amid strong domestic demand
and massive capital flows.
Although expectations for global economic activity are positive, risk
factors remain a major concern. The increasing likelihood of debt restructuring
in European countries with sovereign debt problems and the surge in crude oil
prices fueled by geopolitical concerns may hamper growth. In addition, the
fact that the quantitative easing in advanced economies will end in the
upcoming period is likely to slow down capital flows into emerging economies.
The rapid fourth-quarter growth in the U.S. economy, driven largely by
private final demand, was well received. The brighter-than-expected firstquarter data releases providing indicative information and the accelerated
employment growth are other positive developments in the last three months.
Following these developments, although some of the U.S. Fed officials called for
an early end to the second round of quantitative easing and stressed the need
to start a tightening cycle sooner rather than later, the minutes of the FOMC
meeting on March 15 revealed that the easing program would proceed as
planned. Thus, the expectation for a policy hike to start in late 2011 is preserved.
The contribution of private consumption spending to euro area growth
increased in the fourth quarter, while fixed investment spending made a
negative contribution. Leading indicators point to an ongoing mild growth in
the first quarter of 2011, yet growth rates continue to differ across the region.
The increase in resources available through the European Financial Stability
Fund (EFSF), Ireland's banking sector stress tests showing no need for extra
capital and Spain's attempts to differentiate itself from other EU economies are
all considered an improvement. On the other hand, Portugal's plea for
international assistance, structural problems of the peripheral economies and
ongoing debt concerns despite bailouts as well as the unfinished negotiations
over the design of the European Stability Mechanism (ESM), a permanent anticrisis mechanism, pose a downside risk to euro area growth and global risk
appetite.
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
Emerging economies continued to grow rapidly in the first quarter, while
the mounting inflation pressure points to a sooner- and a stronger-thanexpected monetary tightening. The most important risk factor for emerging
economies are the massive capital inflows that cause loss of competitiveness
and credit growth. Emerging market central banks adopt macroprudential
measures to cushion their economies against the side effects of massive capital
flows.
Commodity prices remained a major source of uncertainty in the first
quarter. As energy and precious metal prices were mainly driven by the political
tensions in the MENA region, prices of these commodities may ease once
tensions fade. However, due to supply constraints and higher demand, prices of
some commodities may continue to face upward pressure, and further weigh
on inflation.
2.1. Global Growth
Global economic activity continued to recover during the first quarter.
Although the later-recovering advanced economies returned to pre-crisis
growth rates, economic activity remains below pre-crisis levels as of the final
quarter of 2010. The strong growth across emerging economies continues. Yet,
the global production index weighted by the share of each country in Turkish
exports continued to hover below pre-crisis levels in the fourth quarter. The
export-weighted global production index is expected to surpass pre-crisis levels
in the second quarter of 2011 provided that advanced economies accounting
for a major share of Turkish exports continue to recover (Charts 2.1.1 and 2.1.2).
Chart 2.1.1.
Chart 2.1.2.
Aggregate Growth Rates*
Export and GDP-Weighted Global Production
Indices (1996Q1 = 100)
(Annual Percent Change)
Advanced Economies
10
155
153
151
149
147
145
143
141
139
137
135
133
131
129
8
6
4
2
0
-2
-4
-6
123412341234123412341234123412341234
2002 2003 2004 2005 2006 2007 2008 2009 2010
* Weighted by each country’s share in global GDP.
Source: Bloomberg, CBRT.
12
GDP-Weighted Global
Export-Weighted Global
GDP-Weighted Advanced
Emerging Economies
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2006
2007
2008
2009
2010
2011
Source: Bloomberg, CBRT.
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Although employment growth has accelerated across advanced
economies, unemployment rates remain well above pre-crisis levels, posing risk
to GDP growth (Chart 2.1.3). The fact that the U.S. unemployment rate is falling,
albeit modestly, since November has sparked optimism. Moreover, the U.S. real
estate prices continue to trend downward (Chart 2.1.4).
Chart 2.1.3.
Chart 2.1.4.
Unemployment in Advanced Economies
Real Estate Price Indices in the U.S. Economy
(Percent)
U.S.A.
S&P Case Schiller
FHFA
Moody's Commercial Property
Euro Area
11
225
200
9
175
7
150
5
125
Source: Bloomberg.
2011
2010
2009
2008
2007
2006
100
2005
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
3
Source: Bloomberg.
JP Morgan Global PMI indices, the most recent data for the first quarter of
2011, remained above the neutral level (Chart 2.1.5). The U.S. PMI hit the highest
level in recent years, indicating a strong first-quarter growth. Despite tight fiscal
policies as well as financial and fiscal problems in periphery economies, the
euro area manufacturing PMI also remained high. Similarly, China's PMI
exceeded the neutral level, implying a further rapid growth in the Chinese
economy (Chart 2.1.6).
Chart 2.1.5.
Chart 2.1.6.
JP Morgan Global PMI
PMI
Manufacturing
Services
U.S.A.
65
65
60
60
55
55
50
50
45
45
40
40
35
Euro Area
China
35
Source: Bloomberg.
Inflation Report 2011-II
2011
2010
2009
2008
2007
30
2006
2011
2010
2009
2008
2007
2006
30
Source: Bloomberg.
13
Central Bank of the Republic of Turkey
Consensus Economics kept its end-2011 global growth forecasts high.
Although forecasts are revised slightly down after the January Inflation Report
amid production cuts due to natural disasters in Japan and severe weather
conditions in the U.S.A., expectations for 2012 are positive. The 2011 growth
forecasts for Japan are slashed due to the devastating earthquake, leading to
a downgrade for Asia-Pacific growth forecasts (Table 2.1.1).
Table 2.1.1.
Growth Forecasts
(Annual Percent Change)
2011
World
United States
Euro Area
Japan
China
Eastern Europe
Latin America
Asia-Pacific
2012
January
April
April
3.4
3.2
1.5
1.2
9.2
3.9
4.1
5.1
3.3
2.9
1.7
0.3
9.3
4.1
4.2
4.8
3.7
3.3
1.7
2.7
8.9
4.3
4.2
5.7
Source: Consensus Forecasts.
2.2. Commodity Prices
Global commodity prices continued to rise in the first quarter of 2011.
Energy prices increased sharply on the back of oil prices surging to their highest
since August 2008 due to problems in the MENA region. The political unrest in
the region also caused precious metal prices to hit historic highs. The increase in
agricultural prices for the last three months was rather limited compared to the
January Inflation Report. Meanwhile, industrial metal prices continued to rise,
however at a decelerating rate compared to the previous reporting period
(Charts 2.2.1 and 2.2.2).
Chart 2.2.1.
Chart 2.2.2.
S&P Goldman Sachs Commodity Prices
Crude Oil (Brent) Prices
0712
0112
0711
40
0110
30
0109
60
0111
60
0710
80
0110
90
0709
100
0109
120
0708
120
0108
14
140
150
Source: Goldman Sachs.
Spot
Futures (1-4 January, 2011)
Futures (1-8 April, 2011)
0709
180
(USD/bbl)
Energy
Agriculture
0111
Headline
Industrial Metals
Precious Metals
0710
(January 2008=100)
Source: Bloomberg.
Inflation Report 2011-II
Central Bank of the Republic of Turkey
OPEC's decision to leave production quotas unchanged despite ample
idle capacity puts upward pressure on crude oil prices (Chart 2.2.3). The
political tensions in the MENA region add to this upward pressure due to
production cuts and increased uncertainty. Moreover, the U.S. Department of
Energy expects the decline in inventories since the middle of 2010 to continue
throughout 2011 owing to supply shortages (Chart 2.2.4). Although prices are
expected to fall once the geopolitical tensions end, OPEC's current decision is
likely to limit this decline.
Chart 2.2.3.
Chart 2.2.4.
OPEC Capacity, Quotas and Production
OECD Crude Oil Inventories*
(Million Barrels)
Capacity
34
Quota
(Million Barrels)
Production
2800
2750
32
2700
30
2650
2600
28
2550
26
2500
24
2450
0111
0710
0110
0709
0109
0708
0108
0707
0107
0706
0106
0705
0105
0704
0104
0104
0704
0105
0705
0106
0706
0107
0707
0108
0708
0109
0709
0110
0710
0111
0711
2400
22
* Estimate after February 2011..
Source: U.S. Department of Energy.
Source: Bloomberg.
The most important factor that kept the increases in agricultural prices at
minimum was the U.S. Department of Agriculture's upward revision to its wheat
inventory forecast for end-2011 envisioning lower consumption and higher
supplies. However, the positive outlook for wheat has no effect on other major
agricultural commodities, such as corn and cotton (Table 2.2.1).
Table 2.2.1.
Production, Consumption and Inventory Estimates for Agricultural Commodities
WHEAT (million tons)
Beginning Inventories
Production
Consumption
Ending Inventories
CORN (million tons)
Beginning Inventories
Production
Consumption
Ending Inventories
COTTON (million bales)
Beginning Inventories
Production
Consumption
Ending Inventories
2010/2011
January
April
2008/2009
2009/2010
124.8
684.2
641.7
167.2
167.2
682.6
652.5
197.3
197.4
645.8
665.3
178.0
197.9
647.2
662.3
182.8
131.4
798.4
781.9
147.8
147.8
812.4
815.7
144.5
147.1
816.0
836.1
127.0
145.8
814.9
838.3
122.4
60.7
107.1
110.0
60.5
60.5
101.3
118.5
43.8
43.9
115.5
116.6
42.8
44.0
114.5
117.1
41.6
Source: U.S. Department of Agriculture.
Inflation Report 2011-II
15
Central Bank of the Republic of Turkey
2.3. Global Inflation
Global consumer inflation rates continued to trend upward in the first
quarter
amid
ongoing
global
recovery
and
rising
commodity
prices
(Charts 2.3.1 and 2.3.2). Core inflation rates maintained the historic lows in
advanced economies, while remaining significantly higher in emerging
economies.
Chart 2.3.2.
Chart 2.3.1.
Core CPI Inflation in
Advanced and Emerging Economies
(Annual Percent Change)
CPI Inflation in
Advanced and Emerging Economies
(Annual Percent Change)
Advanced Economies
Advanced Economies
Emerging Economies
10
Emerging Economies
5
8
4
6
3
4
2
2
1
0
0111
0710
0110
0709
0109
0708
0108
0707
1210
0610
1209
0609
1208
0608
1207
0607
1206
0606
1205
Source: Bloomberg, CBRT.
0107
0
-2
Source: Bloomberg, Datastream, CBRT.
The global inflation forecast for end-2011 was revised substantially upward
in April from the previous reporting period (Table 2.3.1). Inflation expectations
are significantly higher for advanced economies poised for strong growth in the
upcoming period. For emerging economies, inflation forecasts are revised
upward only slightly.
Table 2.3.1.
Inflation Forecasts
(Annual Percent Change)
2011
Consensus Economics
World
United States
Euro Area
Emerging Economies
Eastern Europe
Latin America
Asia-Pacific
January
April
2.8
1.7
1.8
3.4
2.7
2.4
6.0
7.1
2.8
6.3
7.5
3.3
Source: Consensus Forecasts.
2.4. Financial Conditions and Risk Indicators
In the first quarter, financial markets mostly responded to the sovereign
debt crisis in the peripheral Europe and to positive macroeconomic news. The
16
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Japanese earthquake on March 11 created uncertainty, leading to a decline in
risk appetite, albeit temporarily. While risk appetite improved on incoming
positive data, inflationary pressures increased and the ECB announced its first
post-crisis rate hike. Meanwhile, debates grew stronger that Fed should tighten
monetary policy sooner. These developments suggest that 'push factors' would
have less impact in the upcoming period than in previous periods and capital
flows into emerging economies would decline.
Despite falling amid the euro area debt crisis and the Japanese
earthquake, global risk appetite recovered on positive data releases, hovering
close to levels observed during the previous reporting period (Chart 2.4.1).
Chart 2.4.1.
Global Risk Appetite
Credit Suisse Risk Appetite Index
VIX (right axis, inverted)
10
0
8
15
6
4
30
2
45
0
-2
60
-4
75
-6
0411
1210
0810
0410
1209
0809
0409
1208
0808
90
0408
-8
Source: Bloomberg.
The possibility of a restructuring across debt struck euro area countries
was heavily debated during the first quarter of 2011, while borrowing rates
remained on the rise in these countries throughout this period. Adding a political
crisis to debt woes, Portugal experienced a negative performance and the
caretaker government called for international assistance in the first week of
April. Although Spain's austerity measures helped the country to diverge
positively from other indebted countries in the first quarter, the Spanish banking
sector's high exposure to Portugal adds to the doubts. In Ireland, where
problems primarily arise from the banking sector, the renewed stress tests
yielding favorable results and thus indicating no need for new capital, boosted
optimism. Despite the decline following the stress test results that replaced the
sharp increase in the first quarter, Irish banking sector CDS rates remained
elevated (Charts 2.4.2 and 2.4.3).
Inflation Report 2011-II
17
Central Bank of
o the Republic of
o Turkey
Chart 2.4.2..
Chart 2.4.3.
Bond Spread
ds in Selected Co
ountries over Ge
erman
Bonds (10-Yea
ar, Basis Points)
CDS Ra
ates in Selected Countries (5-yeaar, Basis Points)*
Portugal
Spain
2011Q
Q1
Sovereign CDS rate
Greece
Ireland
1200
1000
800
1400
2010Q
0Q4
1200
Greece
1000
800
Ireland
600
600
400
Portugal
400
0411
0111
1010
0710
0
0410
0
0110
200
1009
200
Spain
0
200
400
600
800 10000 1200 1400
Banking S
Sector CDS rate
* Period averages.
a
Bank CDS rates based on data from
m Alpha Bank for
Greece, Banco Comercial for Portugal, Allied Irish for IIreland and BBVA
for Spain..
Source: Bloomberg.
B
Source: Bloomberrg.
Stoc
ck markets remained
r
vo
olatile in line with chan
nges in the global risk
appetite, while
w
emerg
ging stock m
markets close
ed slightly higher in the ffirst quarter
(Chart 2.4
4.4). Risk premiums
p
fo
or emergin
ng econom
mies remain ed largely
unchanged quarter-o
on-quarter, w
while emerg
ging markett currenciess began to
e again afte
er the fourth--quarter dep
preciation (C
Chart 2.4.5).
appreciate
Chart 2.4.4..
Chart 2.4.5.
Exchan
nge Rate* and Risk
R Premium Indiicators for
Emergiing Economies
Global Stock
k Markets
(January
y 2007=100).
Currency Basket (1 USD+11 euro)
EMBI (basis points, right axxis)
MSCI - Emerging Economies
MSCI - Advanc
ced Economies
300
140
1000
130
250
800
120
200
600
110
150
400
100
100
200
90
Source: Credit Suisse, Bloomberg.
0411
1210
0810
0410
1209
0809
0409
1208
0808
0
0408
0111
0710
0110
0709
0109
0708
80
0108
50
*Arithmetical average of the exchange rates of emerging market
currencie
es against the currency
y basket of 1 USD and 1 euro. An upward
movemen
nt denotes depreciatio
on in emerging market currencies and
Source: Bloomberg.
Notw
witstanding expectation
ns, long-term
m interest ra
ates, having
g increased
after the Fed's
F
launch of the seco
ond round of
o quantitative easing in
n late 2010,
remained broadly unchanged in
n the first qu
uarter, hove
ering around
d year-end
art 2.4.6). Sim
milarly, expe
ectations of FOMC rate changes w
were largely
levels (Cha
18
Inflation Re
eport 2011-II
Central Bank of the Republic of Turkey
flat, while the expectation for the first rate hike to come in late 2011 was
maintained (Chart 2.4.7).
Chart 2.4.6.
Chart 2.4.7.
U.S. Yield Curve
Expectations of FOMC Rate Changes
(Percent)
(Percent)
December 31, 2010
April 2, 2010
January 28, 2011
April 1, 2011
April 7, 2011
2.5
December 31, 2010
February 25, 2011
2.5
2
2.0
1.5
1.5
1
1.0
0.5
0.5
Source: Bloomberg.
0213
1112
0812
0512
5-year
0212
2-year
1111
1-year
0511
1-month 3-month 6-month
0811
0.0
0
Source: Bloomberg.
The Fed's Lending Survey results indicate that loan standards continue to
ease, while loan demand increased for the first time in the post-crisis period
(Chart 2.4.8). According to the ECB's Lending Survey, tightness in loan standards
ended and loan demand continues to trend upward (Chart 2.4.9).
Chart 2.4.8.
Chart 2.4.9.
U.S. Lending Survey*
Euro Area Lending Survey*
(Percent)
(Percent)
Loan Standards (Large/Medium Firms)
Loan Standards (Small Firms)
Loan Demand (Large/Medium Firms)
Loan Demand (Small Firms)
90
Loan Standards (Small/Medium Firms)
Loan Standards (Large Firms)
Loan Demand (Small/Medium Firms)
Loan Demand (Large Firms)
70
70
50
50
30
30
10
10
-10
-30
-10
-50
-30
* Upward movements indicate tightened loan standards.
Source: Fed.
2011
2010
2009
2008
2007
2006
2005
-50
2004
2011
2010
2009
2008
2007
2006
2005
2004
2003
-90
2003
-70
Source: ECB.
2.5. Global Monetary Policy Developments
In the first quarter, policy rates remained at historic lows across advanced
economies, while the quantitative easing cycle came to an end. Meanwhile,
Inflation Report 2011-II
19
Central Bank of the Republic of Turkey
emerging economies adopted macroprudential measures in response to
capital flows and began to normalize policy rates (Table 2.5.1).
The quantitative easing across G3 economies that started in 2008
continued into the first quarter of 2011. However, in the light of incoming positive
data, the U.S. and the European central banks hinted at an end to the easing
cycle, whereas Japan eased monetary policy to compensate for the damage
caused by the devastating earthquake. In the first quarter, emerging
economies continued relying on quantitative tightening measures to counter
potential spillovers from the additional quantitative easing programs in
advanced economies. Many emerging economies continued to impose
capital controls in order to contain the negative impacts of the massive capital
flow into emerging economies, prompted by the ample global liquidity
generated by the policy measures in advanced economies, on financial
stability and the medium-term inflation outlook, with Latin American and the
Asia-Pacific economies taking the lead. Moreover, required reserve ratios that
were lowered during the crisis to enhance the functioning of credit channel
were raised again in the first quarter, leading to a tighter monetary stance
(Table 2.5.1).
Table 2.5.1.
Monetary Policy Actions in Emerging Economies
Policy Rate Changes
LATIN
AMERICA
January
11
February'
11
March'
11
Brazil
0.5
-
0.5
√
√
Chile
-
0.25
0.5
-
-
Colombia
-
0.25
0.25
-
√
0.25
0.25
0.25
√
√
China
-
0.25
-
√
√
India
0.25
-
0.25
√
√
-
0.25
-
√
√
S. Korea
0.25
-
0.25
√
√
Malaysia
-
-
-
√
-
Peru
Indonesia
ASIA-PACIFIC
Thailand
Capital
Controls
-
-
0.125
√
√
0.25
-
0.25
-
√
Taiwan
CEEMEA
Macroprudential Measures
Required
Reserve Ratio
Changes
Hungary
0.25
-
-
√
-
Israel
0.25
0.25
0.5
√
√
Poland
0.25
0
0
√
√
Turkey
-0.25
-
-
√
-
Reserve
Accumulation
√
√
√
√
√
√
Source: Relevant central banks websites.
The previous Report indicated that major central banks would postpone
the policy normalization process. Accordingly, these central banks continued to
20
Inflation Report 2011-II
Central Bank of the Republic of Turkey
keep policy rates mostly unchanged (Chart 2.5.1). Indeed, in aggregated
indices, composite policy rates for advanced economies remained stable in the
first quarter (Chart 2.5.3). In emerging economies, macroprudential measures
and increased inflationary pressures brought policy rates up in the first quarter,
adding to the tightening of monetary policy (Chart 2.5.2). Thus, composite
policy rates for emerging economies increased by 0.5 percentage points
quarter-on-quarter to 6.5 percent by the end of March (Chart 2.5.4).
Chart 2.5.1.
Chart 2.5.2.
Policy Rate Changes in
Advanced Economies from Sept. 2007 to Mar.
2011* (Basis Points)
Policy Rate Changes in
Emerging Economies from Sept. 2007 to Mar. 2011*
(Basis Points)
September 2007 - December 2010
January 2011 - March 2011
September 2007 - December 2010
January 2011 - March 2011
200
200
100
0
0
-200
-100
-400
-200
-600
-400
-800
-500
-1000
-600
-1200
Brazil
S. Africa
Indonesia
Hungary
Colombia
Malaysia
Peru
Mexico
Poland
Romania
Chile
Russia
-1400
Turkey
U.S.A.
Australia
Euro Area
Czech Rep.
U.K.
S. Korea
Israel
Japan
Sweden
Norway
Canada
N. Zealand
-700
Thailand
-300
* As of end-March 2011.
Source: Bloomberg, CBRT staff calculations.
Chart 2.5.4.
Chart 2.5.3.
Policy Rates in Inflation-Targeting
Emerging Economies
Policy Rates in Advanced Economies
(Percent)
(Percent)
Emerging Economies
4.5
20
4.0
18
3.5
16
3.0
Turkey
14
2.5
12
2.0
0111
0910
0510
0110
0909
0509
0109
0908
0508
0108
0907
0507
0107
0906
0506
0111
0910
0510
0110
0909
0509
0109
0908
0508
0108
0907
0507
4
0107
6
0.0
0906
0.5
0506
8
0106
1.0
0106
10
1.5
Source: Bloomberg, CBRT staff calculations.
Expectations that central banks of advanced economies would start
normalizing policy rates soon are stronger compared to the previous reporting
period. In view of the positive first-quarter growth and unemployment data as
well as the rising core inflation, expectations for quantitative easing to end and
Inflation Report 2011-II
21
Central Bank of
o the Republic of
o Turkey
policy rate
es to hike in 2011 grew sstronger. Sim
milarly, the EC
CB hiked its policy rate
by 0.25 pe
ercentage points in Aprill to keep a lid on inflatio
on that hove
ers above 2
percent. Expectations of a soone
er rate hike across
a
advanced econo
omies feed
into expec
ctations of upcoming
u
rrate hikes across many emerging economies
that are exposed
e
to massive cap
pital flows due
d
to amp
ple global liq
quidity and
avoid raisin
ng rates for fear
f
of furthe
er accelerattion in capital flows (Cha
art 2.5.5).
Chart 2.5.5.
Expectations of Rate Changes
(Basis Points)
20
Advanc
ced
Econom
mies
18
Lati n America
Asia-Pacific
CEEMEA
16
14
12
10
8
6
4
2
Actual
Turkey
y
Poland
S. Africa
Thailand
Czech Rep.
S. Korea
Philippines
China
Indonesia
Peru
Chile
Mexico
Colombia
Brazil
U.K.
Canada
Japan
Euro Area
U.S.A.
0
Expected
Source: Bloomberg.
22
Inflation Re
eport 2011-II
Central Bank of the Republic of Turkey
3. Inflation Developments
3.1. Inflation
Consumer prices were up 1.57 percent during the first quarter of 2011,
while annual inflation decreased to a historic low of 3.99 percent. The steep
decline in annual inflation largely reflects the weakening of base effects from
the January 2010 tax adjustments on fuels, alcoholic beverages and tobacco
as well as the changes in unprocessed food prices. While producer prices
exerted more pressure, aggregate demand conditions provided less support for
disinflation than in the previous period. Annual inflation in core inflation
indicators increased, but remained at low levels.
By subcategories, the quarterly rate of change in prices of items other
than core goods was down from the average of previous years (Chart 3.1.1).
After the sharp correction in unprocessed food prices during the fourth quarter
of 2010, food inflation slowed down, increasing slightly in the first quarter.
Although energy prices rose in the first quarter amid higher international energy
prices and exchange rate developments, the rate of increase was below
historical averages. Soaring international commodity prices and the weak
Turkish lira had a major impact on domestic prices, particularly on prices of core
goods. Annual inflation in core goods increased due to these effects,
contributing about 1 percentage point to consumer inflation (Chart 3.1.2).
Despite heightened cost pressures, annual services inflation recorded a modest
decline signaling that demand conditions have yet to put upward pressure on
inflation.
Chart 3.1.1.
Chart 3.1.2.
CPI by Subcategories
Contribution to Annual CPI Inflation
(First-Quarter Percent Change)
2006-2010 Average
12
Core Goods*
Services
Tobacco and Gold***
2011
14
10
12
8
6
10
4
8
2
6
0
4
-2
-4
2
-6
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0
0608
CPI
0308
Energy Tobacco Core Services
and
Goods*
Gold***
1207
Food
* Core Goods Excluding food, energy, alcoholic beverages, tobacco and gold.
** Food and Energy: Food, non-alcoholic beverages and energy.
*** Tobacco and Gold: Alcoholic beverages, tobacco and gold.
Source: TurkStat, CBRT.
Inflation Report 2011-II
23
Central Bank of the Republic of Turkey
The annual rate of increase in food prices dropped by a remarkable 3.55
percentage points to 3.47 percent in the first quarter. Thus, food prices
remained lower than the envisaged path in the January Inflation Report, largely
due to ongoing corrections in unprocessed food prices (Chart 3.1.3). Fresh fruit
and vegetable prices continued to fall, returning to the year-ago level
(Chart 3.1.4). In addition, red meat prices continued to trend downward,
reflecting the ongoing effect of import measures (Chart 3.1.4).
Chart 3.1.3.
Chart 3.1.4.
Unprocessed Food and Consumer Prices
Subcategories of Unprocessed Food and Consumer
Prices
(Seasonally Adjusted Price Index)
(Seasonally Adjusted Price Index)
Fresh Fruit-Vegetable Prices
Unprocessed Food Prices
Consumer Prices
Consumer Prices
240
280
220
260
Red Meat Prices
240
200
220
200
180
180
160
160
140
140
120
120
100
Source: TurkStat, CBRT.
0111
0710
0110
0709
0109
0708
0108
0707
0107
0706
0106
0705
80
0105
0111
0710
0110
0709
0109
0708
0108
0707
0107
0706
0106
0705
0105
100
Source: TurkStat, CBRT.
Unprocessed food prices are mainly affected by domestic agricultural
developments, while changes in international food prices affect domestic
prices mostly through processed food prices. Therefore, processed food prices
increased in line with international food prices (Chart 3.1.5). Moreover, the
recent depreciation of the Turkish lira also put upward pressure on prices.
Specifically, prices of oils and fats that are highly sensitive to import prices
continued to rise at a faster pace (Chart 3.1.6). International wheat prices
continued to affect food prices through prices of bread and cereals. However,
the temporary lifting of tariffs on wheat imports until May put a cap on price
hikes in this subcategory. Meanwhile, prices of processed meat remained
relatively flat amid slowing unprocessed red meat prices in the first quarter.
24
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 3.1.5.
Chart 3.1.6.
Food Prices
Selected Processed Food Prices
(Annual Percent Change)
(Index, 2003=100)
Processed Food
Processed Meat Products
Bread and Cereals
Solid and Liquid Fats
Unprocessed Food
35
200
30
190
25
180
170
20
160
15
150
Source: TurkStat, CBRT.
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0307
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
110
0908
120
-5
0608
130
0
0308
0.6
140
1207
5
0907
6.4
0607
10
Source: TurkStat, CBRT.
Energy prices increased by 2.27 percent in the first quarter (Table 3.1.1),
mainly on the back of higher international oil prices and rising fuel prices due to
weak Turkish lira (Chart 3.1.7). Among home utilities, solid fuel prices continued
to surge at a more rapid rate, while the rate of increase in water supply tariffs
and bottled gas prices slowed down. Thus, annual energy inflation ended
March at 7.02 percent. Although oil prices in Turkish lira rose dramatically over
the last two quarters, natural gas and electricity prices have yet to increase,
keeping upside risks to 2011 energy prices vigorous (Chart 3.1.8).
Chart 3.1.7.
Chart 3.1.8.
Energy Prices
Energy and Oil Prices
140
100
120
90
* Home utilities include electricity, water, natural gas, bottled gas and
solid fuel.
Source: TurkStat, CBRT.
0311
110
0211
160
0111
120
1210
180
1110
130
1010
200
0910
140
Energy
0810
220
0310
150
0307
0607
0907
1207
0308
0608
0908
1208
0309
0609
0909
1209
0310
0610
0910
1210
0311
240
0710
Brent (TL)
Energy
0510
Fuel
0410
Home Utilities*
(Index, December 2009=100)
0610
(Index, 2003=100)
Source: TurkStat, Bloomberg, CBRT.
Having increased by 26.60 percent in the first quarter of 2010 due to tax
hikes, prices of alcoholic beverages and tobacco remained stable in the first
Inflation Report 2011-II
25
Central Bank of the Republic of Turkey
quarter of 2011, contributing about 1.4 percentage points less to annual
consumer inflation (Chart 3.1.2).
Table 3.1.1.
Prices of Goods and Services
(Quarterly and Annual Percent Change)
CPI
1. Goods
Energy
Food and Non-Alcoholic Beverages
Unprocessed Food
Processed Food
Goods(excl. energy and food)
Core Goods
Durable Goods (excl. gold)
Alcoholic Beverages, Tobacco and
Gold
2. Services
Rents
Restaurants and Hotels
Transport
Communication
Other*
I
II
2010
III
IV
Annual
2011
I
3.93
4.50
5.08
7.33
13.40
1.93
1.81
-3.27
1.32
-0.32
-0.38
0.21
-6.66
-12.76
-0.62
5.07
6.16
0.36
1.15
1.29
0.43
7.02
13.16
1.69
-2.96
-3.45
-0.34
1.55
1.64
3.98
-0.18
-3.05
2.59
2.21
2.59
-1.06
6.40
7.18
9.96
7.02
8.52
5.68
6.09
1.70
0.26
1.57
1.53
2.27
3.77
5.08
2.61
-0.68
-1.08
4.26
23.22
2.32
0.96
3.30
2.44
3.53
1.76
1.48
-0.17
0.65
2.28
1.32
-6.11
0.27
-1.27
0.73
1.30
1.56
1.83
-2.90
1.19
0.93
1.31
0.98
2.30
1.28
2.23
0.30
24.61
4.24
3.96
9.76
7.04
-3.51
3.57
0.81
1.67
1.08
1.65
2.28
1.96
1.61
*Excluding rents, restaurants and hotels, transport and communication.
Source: TurkStat, CBRT.
Annual inflation in core goods increased by 2.31 percentage points
quarter-on-quarter to 4.01 percent (Table 3.1.2). Seasonally adjusted prices of
core goods soared significantly due to changes in import prices and the Turkish
lira (Chart 3.1.9). The annual rate of increase in clothing prices rose moderately,
while prices of other core goods increased at a marked pace (Chart 3.1.10). In
particular, the import-intensive durable goods were significantly affected by
developments in import prices and exchange rates. Coupled with strong
demand, the impact of exchange rates was particularly more pronounced in
automobile and white goods sectors. The most significant risk to prices of core
goods over the upcoming period will be the impact of the Council of Ministers'
decision to raise tariffs on fabrics and apparels on clothing inflation (Box 3.1).
Table 3.1.2.
Prices of Core Goods
(Quarterly and Annual Percent Change)
2010
Core Goods
Clothing and Footwear
Durable Goods (excl. gold)
Furniture
Electrical and Non-Electrical Appliances
Automobiles
Other Durable Goods
Other
I
-3.27
-12.62
1.32
1.41
-0.16
2.17
0.56
-0.95
II
6.16
23.73
0.36
3.76
-1.01
-0.11
2.17
0.11
III
-3.45
-11.90
-0.34
1.77
-0.85
-0.61
-1.81
0.58
2011
IV
2.59
9.94
-1.06
-1.06
-0.23
-1.67
0.90
1.18
Annual
1.70
4.72
0.26
5.94
-2.23
-0.26
1.79
0.91
I
-1.08
-12.04
4.26
0.75
2.87
6.31
2.15
1.82
Source: TurkStat, CBRT.
26
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 3.1.9.
Chart 3.1.10.
Prices of Core Goods
Prices of Core Goods
(Seasonally Adjusted, 3-Month Average, Annual Percent
Change)
(Annual Percent Change)
Core Goods (excl. durable goods and clothing)
20
Durable Goods (excl. gold)
Clothing
12
15
10
8
10
6
4
5
2
0
0
-2
-5
-4
-6
Source: TurkStat, CBRT.
0311
1210
0910
0610
0310
1209
0909
0609
-8
0309
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
1207
-10
Source: TurkStat, CBRT.
Prices of services increased by 1.67 percent in the first quarter, while
annual services inflation fell 0.67 percentage points quarter-on-quarter to 3.57
percent (Chart 3.1.11). Thus, services inflation dropped to an all-time low. Falling
across all other subcategories of services, annual inflation was slightly up in
rents. Specifically, annual catering services inflation dropped markedly amid
slowing food prices (Chart 3.1.12). Prices of transport services increased on rising
domestic fuel prices (Chart 3.1.11). Annual services inflation is expected to rise in
the second quarter due to base effects from communication services.
Chart 3.1.11.
Chart 3.1.12.
Prices of Services by Subcategories
Prices of Services by Subcategories
(First-Quarter Percent Change)
2006-2010 Average
(Annual Percent Change)
Other*
Communication
Transport
Rent
2011
3.0
16
2.5
12
1.5
8
1.0
4
0.5
0
* Excluding rents, restaurants and hotels, transport and communication.
Source: TurkStat, CBRT.
-4
0311
1210
0910
0610
0310
1209
0909
-8
0309
Other*
Communication
Restaurants
and Hotels
Transport
Rent
Services
0.0
0609
2.0
* Excluding rents, restaurants and hotels, transport and communication.
Source: TurkStat, CBRT.
The annual rate of increase in core inflation indicators was up from end2010 (Chart 3.1.13). This increase reflects the effects of the recent developments
Inflation Report 2011-II
27
Central Bank of the Republic of Turkey
in import prices and the Turkish lira on prices of core goods. Moreover, the
seasonally adjusted core inflation indicators increased significantly as well in the
first quarter (Chart 3.1.14). This uptrend suggests that the annual core inflation
would continue to increase in coming months.
Chart 3.1.13.
Chart 3.1.14.
Core Inflation Indicators SCA-H and SCA- I
Core Inflation Indicators SCA-H and SCA-I
(Annual Percent Change)
SCA-H
(Seasonally Adjusted, 3-Month Average, Annual Percent
Change)
SCA-H
SCA-I
SCA-I
20
7
6
15
5
10
4
3
5
2
0
1
0
Source: TurkStat, CBRT.
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
0311
0111
1110
0910
0710
0510
0310
0110
1109
0909
0709
0509
0309
-5
Source: TurkStat, CBRT.
The seasonally adjusted data obtained from diffusion indices remained
on the rise during the first quarter in line with the economic recovery (Charts
3.1.15 and 3.1.16). However, this upward trend caused diffusion indices to
exceed historical averages. Both the recent trends in core inflation indicators
and the outlook for diffusion indices suggest that overall inflation would be on
the rise over the upcoming period.
Chart 3.1.15.
Chart 3.1.16.
CPI Diffusion Index
SCA-H Diffusion Index
(Seasonally Adjusted, 3-Month Average)
0.5
(Seasonally Adjusted, 3-Month Average)
0.6
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
28
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
1207
0907
0607
0307
0607
0907
1207
0308
0608
0908
1208
0309
0609
0909
1209
0310
0610
0910
1210
0311
Source: TurkStat, CBRT.
0307
0.0
0.1
Source: TurkStat, CBRT.
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Producer prices rose at a more rapid rate (by 5.40 percent) in the first
quarter compared to previous periods. Thus, the deviation between annual CPI
and PPI inflation widened. Agricultural prices were up by 5.84 percent due to
developments in fruit and vegetable prices as well as the ongoing rise in wheat
and sunflower prices, both industrial crops (Table 3.1.3 and Chart 3.1.17). On the
other hand, the previously soaring cotton prices and the producer prices for
livestock and milk decreased, and the pass through of livestock and milk prices
to unprocessed food prices was also observed on consumer prices.
Chart 3.1.17.
Chart 3.1.18.
Agricultural Prices
Manufacturing Industry and PMI Output Prices
(First-Quarter Percent Change)
2006-2010 Average
(3-Month Average)
Manufacturing Industry Prices (excl. petroleum
products)
2011
8
PMI - Output Prices Index (right axis)
7
3.0
6
65
2.5
60
5
2.0
4
55
1.5
3
2
1.0
1
0.5
0
0.0
-1
50
45
40
-0.5
-2
Source: TurkStat.
0311
1210
0910
0610
0310
1209
0909
0609
35
0309
-1.0
1208
Agricultural
Products
0908
Livestock and
Products
0608
Crops
Source: TurkStat, Markit, CBRT.
Developments in international commodity prices and the depreciation of
the Turkish lira put upward pressure on input costs in the first quarter, having a
major impact on manufacturing industry prices (Chart 3.1.18). In particular, the
sharp increases in oil and metal prices had a substantial effect on producer
prices for petroleum products and base metals. Although cotton prices fell back
to October 2010 levels in the first quarter, producer prices for textiles continued
to rise, signaling an ongoing gradual pass through of rising costs to
manufacturing industry prices. In addition, increases in agricultural input prices
spread to producer prices for food. As a result, manufacturing industry prices
accelerated significantly compared to previous periods, up 6.27 percent in the
first quarter (Table 3.1.3 and Chart 3.1.18). Hence, first quarter was marked by
strong cost-push inflationary pressures due to higher producer prices.
Inflation Report 2011-II
29
Central Bank of the Republic of Turkey
Table 3.1.3.
PPI and Subcategories
(Quarterly and Annual Percent Change)
PPI
Agriculture
Crops, Fruits and Vegetables
Livestock and Animal Products
Industry
Mining
Manufacturing
Manufacturing (excl. petroleum)
Manufacturing (excl. petroleum and
base metals)
Electricity, Gas and Water
I
4.24
9.66
7.55
12.63
3.12
0.99
2.54
2.28
II
0.67
2.41
2.03
0.29
0.29
1.26
0.10
0.24
2010
III
1.51
1.71
2.78
6.23
1.46
3.75
0.99
1.09
IV
2.21
0.26
-3.17
8.21
2.64
0.95
2.86
2.20
Annual
8.87
14.52
9.20
29.85
7.71
7.11
6.62
5.92
2011
I
5.40
5.84
6.81
-1.26
5.31
9.70
6.27
5.55
1.16
9.67
0.14
1.66
0.72
5.07
1.90
1.32
3.98
18.68
4.85
-4.08
Source: TurkStat, CBRT.
3.2. Expectations
After falling rapidly due to the faster-than-expected decline in consumer
inflation during the last quarter of 2010, medium-term inflation expectations
increased slightly in the first quarter of 2011 (Chart 3.2.1). This was likely driven by
the increase in cost pressures as well as the upward trend in core inflation
indicators. Near-term inflation expectations were particularly higher quarter-onquarter, while longer-term expectations increased only modestly (Chart 3.2.2).
Currently, inflation expectations continue to hover slightly above the year-end
targets of 5.5 and 5 percent for 2011 and 2012, respectively.
Chart 3.2.1.
Chart 3.2.2.
12 and 24-Month Ahead CPI Expectations*
Inflation Expectations Curve*
(Annual Percent Change)
12-Month
(Annual Percent Change)
24-Month
April 2011
Inflation Target
10
10
9
9
January 2011
Uncertainty Band
8
8
7
7
6
6
5
4
5
3
* CBRT Survey of Expectations, second survey period results.
Source: CBRT.
0413
0213
1212
1012
0812
0612
0412
0212
1211
1011
0811
0611
2
0411
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
1207
4
* Calculated by linear interpolation of expectations for different time
spans, using the CBRT Survey of Expectations, second survey period
results.
Source: CBRT.
As of April, the dispersion of survey respondents' 12-month ahead inflation
expectations remains largely unchanged from January, whereas the dispersion
for 24-month ahead inflation expectations is significantly higher (Charts 3.2.3
and 3.2.4).
30
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 3.2.3.
Chart 3.2.4.
Distribution of 12-Month Ahead Inflation
Expectations*
Distribution of 24-Month Ahead Inflation
Expectations*
January 2011
January 2011
April 2011
April 2011
0.72
0.72
0.63
0.63
0.54
0.54
0.45
0.45
0.36
0.36
0.27
0.27
0.18
0.18
0.09
0.09
0.00
0.00
2
4
6
8
10
12
14
2
4
6
8
10
12
14
*Horizontal axis shows inflation rate, vertical axis indicates Kernel forecast. Expectation figures are from the CBRT Survey of Expectations, second survey
period results.
Source: CBRT.
Inflation Report 2011-II
31
Central Bank of the Republic of Turkey
Box
3.1
This
Additional Tariffs on Clothing Imports and Possible Impacts on
CPI
Box estimates the possible impacts of the envisioned tariff adjustments on
fabric and apparel imports on CPI inflation.
Brief Summary
Upon
recourse by some producers, Undersecretariat of Foreign Trade has
launched a study about the impacts of increased imports on domestic fabric and
apparel production. Accordingly, tariff rates were raised by country groups by the
Council of Ministers’ decision on March 24, 2011 (Table 1).1
Table 1. Additional Tariff Rates
Fabrics
Apparels
Other Countries
20
30
Developing Countries
18
27
Least Developed Countries
11
17
Countries Subject to Special Incentives
11
17
Source: Council of Ministers’ decision number 2011/147, dated March 24, 2011.
Possible Impact of the Tariff Adjustment on CPI Inflation
Fabrics and apparels compose a major share of the CPI basket.2 Thus, estimating
the impact of the tariff adjustment on the CPI inflation is critical. To this end, using
an extensive data set, a study has been conducted at the CBRT. Assumptions
underlying the calculations are finalized based on expert views from relevant
institutions and firms.
First,
for each good subject to tariff adjustment, average additional tariff is
calculated by summing additional tariffs for each country weighted by the
country’s share in imports of the relevant good. In addition, for each good, a
representative profit margin is calculated. These profit margins are constructed
from an extensive data set and finalized based on experts’ view. This Box simply
takes profit margin as the ratio of marked price to import price. The tariff
adjustment is assumed to bring no additional cost.
The decision will be effective on the 120th day of its release after the completion of Undersecretariat of Foreign Trade’s
investigation on the issue.
2 The weight of clothing and footwear item in the CPI basket is 7.22 percent with fabrics and apparels composing majority of
this item.
1
32
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Several
factors, some of which will be discussed below, are present regarding
how the increased import costs will be reflected by firms to their prices. In this
context, a lower and upper bound for the possible impact can be determined
such that firms may try to maintain their nominal profit by reflecting the increased
cost as a fixed cost or firms may try to maintain their profit margin so without
compromising their profit margin, they may raise their prices in a way to hold the
profit margin fixed. In this framework, the first pricing behavior can be accepted
as the lower bound whereas the second can be accepted as the upper bound
for the possible impact. The pass through of additional tariffs to marked prices is
calculated given the lower and the upper bounds. Consequently, the goods are
matched with the relevant subcategory in the CPI basket and the degree of pass
through to marked prices are weighted by the share of imports in the domestic
consumption.3
Results and Concluding Remarks
The
additional tariffs are expected to drive annual CPI inflation up by 0.2-0.8
percentage points according to the above method (Table 2). The impacts should
be evaluated in the context of the above assumptions and it should be noted
that the assumption about firms to reach an equilibrium after the tariff adjustment
is inherent in these impacts. The impact will also vary depending on the extent of
the sectoral structural change.
Table 2. Contribution of the Additional Tariff on CPI Inflation
Pass Through of Costs
Contribution to Annual CPI Inflation
(Percentage Points)
Fixed Nominal Profit
(Lower Bound)
Fixed Profit Margin
(Upper Bound)
0.24
0.78
Major uncertainties exist regarding the impact of the tariff adjustment on firms’
pricing and production preferences. To give an example, in case of an increased
competitiveness, firms will not be able to maintain their profit margin. In other
words, the increased competitiveness may result in pass through of increased
import costs to prices of luxury goods with relatively less weight in the CPI basket
as opposed to pass through to prices of goods with relatively higher demand,
lower price and more weight in the CPI basket, thus limiting the pass through to
CPI. On the other hand, if domestic firms increase their prices due to higher import
costs, the impact of the tariff adjustment on inflation may be even more sizeable.
Domestic firms are also assumed to slightly increase their prices. Based on experts’ view, this increase is taken to be half of the
increase in the import prices.
3
Inflation Report 2011-II
33
Central Bank of the Republic of Turkey
In sum, tariff adjustments
are expected to drive annual CPI inflation up by 0.5
percentage points. Hence, the year-end inflation forecast is revised upwards.
However, it should be underlined that major uncertainties exist regarding these
calculations. The final impact on consumer prices will be determined by factors
such as preferences for domestic vs. foreign firms, the competitiveness and
pricing behavior of domestic firms.
34
Inflation Report 2011-II
Central Bank of the Republic of Turkey
4. Supply and Demand Developments
The fourth-quarter national accounts data are consistent with the outlook
presented in the January Inflation Report. After growing temporarily at a slower
pace in the third quarter due to the worsening European sovereign debt
problems since May, the economy displayed a robust growth in the fourth
quarter. Domestic demand was the main driver of growth, whereas, despite
recovering exports, net external demand made a negative contribution due to
rising imports. Thus, the divergence between domestic and external demand
growth has become more pronounced during the exit phase. 2011 first quarter
data indicate that the economy remains strong amid stronger domestic
demand. Weak exports in addition to absence of a marked slowdown in the
demand for imports led to further widening of the foreign trade deficit.
Although weak global growth continues to restrain economic activity,
domestic demand continues to be stimulated by the lagged effects of the
previously implemented expansionary fiscal and monetary policies, while
capital flows continue to spur loans. In this regard, it is likely that demand
conditions in domestic market oriented sectors no longer support disinflation.
Therefore, domestic demand should be kept under control for limiting the pass
through of the increases in unit costs into domestic prices.
4.1. Gross Domestic Product Developments and Domestic
Demand
According to the national accounts data released by TurkStat, GDP
increased by 9.2 percent year-on-year during the fourth quarter of 2010. Thus,
Turkish economy grew by 8.9 percent in 2010. As in the third quarter, the largest
contributor to annual growth in the fourth quarter was private demand
comprising of private consumption and private investment. Due to rallying
demand for imported goods, net external demand made a negative
contribution to annual growth despite soaring exports (Chart 4.1.1).
After slowing in the third quarter, the seasonally adjusted GDP picked up
expanding by 3.6 percent quarter-on-quarter. Growing at a strong pace
quarter-on-quarter, final domestic demand was the main driver of the quarterly
growth (Chart 4.1.2). Meanwhile, external demand remained relatively weak.
Inflation Report 2011-II
35
Central Bank of the Republic of Turkey
Chart 4.1.1.
Chart 4.1.2.
Contribution to GDP Growth by Demand
Components
GDP and the Final Domestic Demand
(Seasonally Adjusted, 2008Q1=100)
(Percentage Points)
9.2
10
8
GDP
8.0
6.2
Final Domestic Demand
110
6
4
105
-6.7
0.8
2
-0.7
0
100
1.1
0.4
-2
-4
95
-6
90
GDP
Inventories
Imports
Exports
Public Investment
Private Consumption
Private Investment
Public Consumption
-8
85
80
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2005
Source: TurkStat.
2006
2007
2008
2009
2010
Source: TurkStat, CBRT.
There was no significant slowdown in loan utilization and domestic
demand during the first quarter. Both the consumer confidence and the
investment sentiment remained robust in the first quarter, while production and
imports data indicate that domestic demand continues to recover rapidly
(Charts 4.1.3 and 4.1.4).
Chart 4.1.3.
Chart 4.1.4.
Consumer Confidence
12-Month Ahead BTS Expectations for Investment
(Seasonally Adjusted)
(Up-Down, Seasonally Adjusted)
CNBC-e
CBRT (right axis)
120
95
40
30
110
90
20
10
100
85
0
-10
90
80
80
-20
-30
75
70
-40
-50
Source: TurkStat, CNBC-e, CBRT.
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
1207
0907
0607
-60
0307
0211
1210
1010
0810
0610
0410
0210
1209
1009
0809
0609
0409
70
0209
60
Source: CBRT.
Production and imports of consumption goods were higher than the
fourth-quarter average during January-February (Chart 4.1.5). Despite falling
slightly quarter-on-quarter in the first quarter, automobile sales were well above
historical averages (Chart 4.1.6). The credit channel continued to support
growth in the first quarter even though automobile loans were relatively slower
(Chart 4.1.7). Meanwhile, second-quarter order expectations of sectors
36
Inflation Report 2011-II
Central Bank of the Republic of Turkey
producing consumption goods in the domestic market weakened partly on the
tightening effects of the recent policy measures (Chart 4.1.8).
Thus, the recently adopted additional policy measures are expected to
restrain loan utilization and domestic demand growth by the second quarter.
Chart 4.1.5.
Chart 4.1.6.
Production and Import Quantity Indices of
Consumption Goods
Domestic Sales of Automobiles
(Thousand, Seasonally Adjusted)
(Seasonally Adjusted, 2005 = 100)
Production
Imports (right axis)
Imports
120
115
45
18
210
40
16
190
35
14
30
12
25
10
20
8
15
6
10
4
50
5
2
30
0
170
110
Domestic Production (right axis)
230
150
130
105
110
90
100
70
95
2005
2006
2007
2008
2009
0
1234123412341234123412341
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
20102011
2006
2007
2008
2009
20102011
* January-February figures.
Source: TurkStat, CNBC-e, CBRT.
Source: Automotive Distributors' Association, CBRT.
Chart 4.1.7.
Chart 4.1.8.
Weekly Consumer Loans
3-Months Ahead BTS Expectations for Orders of
Consumption Goods in the Domestic Market
(Weekly Percent Change, 13-Week Average)
(Up-Down, Seasonally Adjusted)
Total
Other
Housing
Automobile
40
1.5
30
1.0
20
10
0.5
0
0.0
-10
-0.5
-20
-30
Source: TurkStat, CNBC-e, CBRT.
0311
0111
1110
0910
0710
0510
0310
0110
1109
0909
0709
0509
0309
0109
-1.0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2007
2008
2009
2010
2011
Source: CBRT.
Production of investment goods continued to increase during JanuaryFebruary compared to the fourth-quarter average, while imports of investment
goods remained flat at record highs (Chart 4.1.9). Despite slowing modestly,
domestic sales of commercial vehicles remained strong during the first quarter,
indicating the ongoing rapid recovery in private investments (Chart 4.1.10). The
relative stability in expectations of a rise in 12-month ahead investment plans of
manufacturing industry firms indicates a less gloomy aggregate demand
Inflation Report 2011-II
37
Central Bank of the Republic of Turkey
outlook (Chart 4.1.4). Yet, investments may slow down amid the recently
introduced policy measures.
Chart 4.1.9.
Figure 4.1.10.
Production and Import Quantity Indices of
Capital Goods
Domestic Sales of Commercial Vehicles
(Thousand, Seasonally Adjusted)
(Seasonally Adjusted, 2005 = 100)
Production
Imports
Production (excl. motor vehicles)
Imports (excl. transport)
200
35
180
30
160
25
140
120
20
100
15
80
60
10
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2006
2007
2008
2009
2010 2011
* January-February figures.
Source: TurkStat, CBRT.
123412341234123412341234123412341
2003 2004 2005 2006 2007 2008 2009 20102011
Source: Automotive Manufacturers Association, CBRT.
In sum, both the ongoing increases in consumer confidence and loan
utilization as well as the investment spending stabilizing at elevated levels
suggest that domestic demand remains strong. In view of the production and
import data, it is estimated that private demand has increased further in the first
quarter of the year. After hovering below pre-crisis levels in the third quarter of
2010, private demand bounced back to resume its previous trend in the last two
quarters (Chart 4.1.11). The effects of the recently adopted additional policy
measures on loan utilization and domestic demand are expected to be
materialized by the second quarter.
Chart 4.1.11.
Private Demand
(Seasonally Adjusted, 2008Q1=100)
110
105
100
95
90
85
80
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
2008
2009
2010 2011
* Estimate.
Source: TurkStat, CBRT.
38
Inflation Report 2011-II
Central Bank of the Republic of Turkey
4.2. External Demand
The fourth-quarter outlook for external demand was broadly consistent
with the January Inflation Report forecasts. While exports of goods and services
increased by 4.3 percent year-on-year, imports of goods and services were up
as high as 25.4 percent year-on-year. Despite the recovery in exports, negative
contribution of net external demand to annual growth increased quarter-onquarter due to the accelerated demand for imported goods (Chart 4.2.1). In
seasonally adjusted terms, exports remained volatile, while imports rose
dramatically quarter-on-quarter (Chart 4.2.2). Hence, the divergence between
domestic and external demand growth has become more pronounced in the
exit phase.
Chart 4.2.1.
Chart 4.2.2.
Contribution of Net External Demand to Annual
GDP Growth
Exports and Imports of Goods and Services
(Seasonally Adjusted, 1998 Prices, Billion TL)
(Percentage Points)
Exports
Imports
Exports
Net Exports
Imports
6
8.5
4
8
2
7.5
0
7
-2
6.5
-4
6
-6
5.5
-8
1
2009
2010
* Estimate.
Source: TurkStat, CBRT.
2
3
2010
4
1*
2011
5
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
2008
2009
2010 2011
* Estimate.
Source: TurkStat, CBRT.
According to quantity indices, exports of goods continued to recover
slowly and gradually in the first quarter of 2011. In fact, the quantity index for
exports excluding gold, a key indicator of the underlying external demand,
increased modestly in the first quarter (Chart 4.2.3). Given the gradual increase
in global import demand, exports of goods and services are expected to
continue to recover moderately in coming months (Charts 4.2.4 and 4.2.2).
Inflation Report 2011-II
39
Central Bank of the Republic of Turkey
Chart 4.2.3.
Chart 4.2.4.
Quantity Index for Exports Excluding Gold
Imports and Industrial Production Indices for the
Global Economy
(Seasonally Adjusted, 2003=100)
(Seasonally Adjusted, 2006=100)
Industrial Production
190
116
170
112
150
108
Imports (right axis)
116
112
108
130
104
100
104
96
110
100
92
* Estimate for March.
Source: TurkStat, CBRT.
0211
0810
0210
0809
0209
0808
0208
88
0807
96
0207
2003 2004 2005 2006 2007 2008 2009 20102011
0806
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 41*
0206
90
Source: Netherlands Bureau for Economic Policy Analysis.
The global economic outlook over the medium term suggests that
downside risks to growth in external markets remain. Recently, mounting political
tension in North Africa as well as the Japanese earthquake have been the key
factors adding to these risks. Yet, there has been no major update to the
aggregated growth outlook for Turkey's main export destinations compared to
the January Inflation Report (Chart 4.2.5). Given the flattening expectations for
export orders, external demand conditions are unlikely to improve strongly in the
short term (Chart 4.2.6). Accordingly, exports are expected to recover slowly
and gradually amid sluggish external demand.
Chart 4.2.5.
Chart 4.2.6.
Export-Weighted Global Production Index
3-Month Ahead BTS Expectations for Export Orders
(Seasonally Adjusted, 2008Q1=100)
January
112
April
(Up-Down, Seasonally Adjusted)
50
110
40
108
30
106
20
104
10
100
0
98
-10
96
-20
Source: Bloomberg, CBRT.
0311
1010
0510
1209
-30
0709
2012
0209
2011
0908
2010
0408
2009
1107
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
0107
94
0607
102
Source: CBRT.
Imports grew sharply amid the acceleration in domestic demand during
the final quarter of 2010. Seasonally adjusted quantity indices signal a slightly
40
Inflation Report 2011-II
Central Bank of the Republic of Turkey
slowing import demand as of January-February, while leading indicators for
March suggest that imports of goods and services continued to rise in the first
quarter (Charts 4.2.2, 4.2.7 and 4.2.8 ).
Chart 4.2.7.
Chart 4.2.8.
Quantity Index for Imports
Imports
(Seasonally Adjusted, 2003=100)
(Seasonally Adjusted, Billion USD)
200
65
190
60
180
55
170
50
160
45
150
40
140
35
130
30
120
25
110
20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
2008
2009
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2010 2011
2005
* January-February figures.
Source: TurkStat, CBRT.
2006
2007
2008
2009
2010 2011
* Estimate for March.
Source: TurkStat, CBRT.
To sum up, recent data releases indicate that the foreign trade balance
continued to deteriorate in the first quarter of 2011. Despite rising exports, net
external demand continues to make a negative contribution to annual growth
due to the increased demand for imported goods (Chart 4.2.1). Indeed, the
current account balance continues to deteriorate (Chart 4.2.9). This indicates
that the divergence between domestic and external demand growth feeds the
risks to financial stability and sustainable growth in the first quarter. Therefore,
given the weak external demand, limiting domestic demand remains critical for
stabilizing foreign trade deficit and the current account balance.
Chart 4.2.9.
Current Account Balance
(12-Month Cumulative, Million USD)
Current Account
Current Account (excl. energy)
20000
10000
0
-10000
-20000
-30000
-40000
-50000
0211
0810
0210
0809
0209
0808
0208
0807
0207
0806
0206
0805
0205
0804
0204
0803
0203
0802
0202
0801
-60000
Source: TurkStat, CBRT.
Inflation Report 2011-II
41
Central Bank of the Republic of Turkey
4.3. Labor Market
Fourth-quarter employment developments were consistent with the
outlook presented in the January Inflation Report. After falling modestly in the
third quarter, non-farm employment increased across all major sectors,
particularly in industry and construction, amid strong economic activity (Chart
4.3.1). With the sharp increase in non-farm employment, unemployment
declined significantly since the last quarter of 2010 (Chart 4.3.2).
Chart 4.3.1.
Chart 4.3.2.
Non-Farm Employment
Unemployment
(Seasonally Adjusted, Million)
(Seasonally Adjusted, Percent)
Labor Force Participation Rate (right axis)
Unemployment Rate
Non-Farm Unemployment Rate
Non-Farm Employment
17.5
Non-Farm Registered Payroll Employment
(right axis)
11.0
20
17.0
10.5
18
10.0
16
16.5
16.0
9.5
50
49
48
14
47
15.5
9.0
15.0
14.5
8.5
14.0
8.0
12
46
10
Source: TurkStat, CBRT.
45
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
0111
0710
0110
0709
0109
0708
0108
0707
0107
8
2007
2008
2009
2010
2011
* As of January.
Source: TurkStat, CBRT.
Leading indicators for the first quarter of 2011 signal that employment
conditions continue to improve. The
manufacturing industry and
PMI
employment indices indicate that employment continued to increase during
the first quarter of 2011 (Charts 4.3.3 and 4.3.4). Moreover, the job opportunities
index derived from the Consumer Confidence Index continued to rise in the first
quarter (Chart 4.3.5). The job vacancy rate constructed by the Turkish
Employment Agency's data to show job opportunities continued to increase
and unemployment benefit applications showing employment losses remained
unchanged, thereby indicating an improvement in employment conditions for
the first quarter (Chart 4.3.6).
42
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 4.3.3.
Chart 4.3.4.
Industrial Employment and Production
Manufacturing Industry Employment
(Quarterly Percent Change) and PMI Employment
Index
(Seasonally Adjusted)
(Seasonally Adjusted)
Industrial Employment
Industrial Production (right axis)
110
4.3
105
4.2
100
4.1
0
50
-2
45
-4
40
-6
35
-8
30
0111
0910
0510
0110
0909
0509
0109
0908
0508
0108
0907
0507
95
0107
4.0
55
Source: TurkStat, CBRT.
0311
115
4.4
2
0910
120
4.5
60
0310
4.6
4
0909
125
0309
4.7
6
0908
130
0308
4.8
Manufacturing Industry Employment Index (ILII)
Manufacturing Industry Employment (HLFS)
65
PMI (right axis)
0907
2005=100
0307
Million
Source: TurkStat, Markit, CBRT.
Chart 4.3.5.
Chart 4.3.6.
Job Opportunities over the next 6 Months
Private Sector Job Vacancy Rate (Percent, Trend)
and Unemployment Benefit Applications
(Seasonally Adjusted)
(Seasonally Adjusted, Thousand)
Unemployment Benefit Applications
100
Job Vacancy Rate (right axis)
95
70
50
90
45
60
85
40
80
50
35
75
40
30
70
30
20
20
15
25
65
60
10
10
55
5
0
50
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2006
2007
Source: TurkStat, CBRT.
2008
2009
2010 2011
0
1234123412341234123412341
2005
2006
2007
2008
2009
20102011
* January-February figures.
Source: Turkish Employment Agency, CBRT.
Non-farm employment is likely to uphold recovery, while unemployment is
expected to fall further in the upcoming period. However, the uptrend in labor
force participation may restrain the decline in unemployment rates and
unemployment rates are unlikely to reach pre-crisis levels in the short term.
High unemployment rates continue to limit labor cost. In seasonally
adjusted terms, real labor costs remained flat across non-agricultural sectors
during the fourth quarter of 2010. (Chart 4.3.7). However, the minimum wage
hikes for 2011 indicate an increase in real terms given the inflation target.
Therefore, with other cost factors to consider, it is even more essential to keep
domestic demand under control in order to maintain disinflation.
Inflation Report 2011-II
43
Central Bank of the Republic of Turkey
Chart 4.3.7.
Chart 4.3.8.
Hourly Labor Cost*
Household Spending, Non-Farm Employment* and
Real Wages*
(Seasonally Adjusted, 2008=100)
(Seasonally Adjusted, 2007=100)
Labor Force Cost (annual percent change, right axis)
Real Wage Payments-Short-Term Labor Statistics
Labor Force Cost
Consumption Spending (excl. furniture, household appliances
and maintenance, transport and communication)
Non-Farm Employment-Short-Term Labor Statistics
Real Labor Force Cost
125
16
120
14
115
12
110
10
105
110
105
100
8
100
6
95
90
4
85
2
80
0
95
90
85
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2007
2008
2009
2005
2010
2006
2007
2008
2009
2010
* Calculated by the weighted average of total wages paid in industrial,
construction, trade, accommodation and catering, and transport and
warehousing sectors. Wages are deflated by CPI.
Source: TurkStat, CBRT.
* Deflated by CPI.
Source: TurkStat, CBRT.
In sum, non-farm employment remains on a steady upward trend as of
end-2010. Strong demand indicators suggest that non-farm employment would
continue to improve in coming months. Yet, labor supply developments may
restrain the fall in unemployment rates (Box 4.1). Employment conditions are
expected to provide further support for aggregate demand growth, while high
unemployment rates would put a cap on rising labor costs (Chart 4.3.8 and
Chart 4.3.9).
Chart 4.3.9.
Non-Farm Value Added and Employment
(Seasonally Adjusted)
Value Added
Employment (right axis)
1998 Prices
Billion TL
Million
26
17.5
25
17.0
24
16.5
23
22
16.0
21
15.5
20
15.0
19
14.5
18
17
14.0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2005
2006
2007
2008
2009
2010 2011
* Estimate.
Source: TurkStat, CBRT.
44
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Box
4.1
Changing Trends in the Labor Market
This Box discusses the reasons for non-farm unemployment to hover above precrisis levels as of end-2010 and makes projections about the upcoming course of
unemployment rates. Because of gender differences in labor force participation
and employment, the comparison between post-crisis and pre-crisis non-farm
unemployment is broken down into male and female categories. Despite
focusing on unemployment rates, the following analysis gives a detailed account
of post-crisis female employment and proceeds with the effects of the gender
gap on sectors.
Across genders, both male and female unemployment increased at similar rates
during the crisis, while the decline in female unemployment has been slower than
male unemployment during the process of recovery (Chart 1). This is largely due
to the rising female labor force participation (Chart 2).
Chart 1.
Non-Farm Unemployment Rates
(Seasonally Adjusted, Percent)
Chart 2.
Non-Farm Labor Force/15+ Population
(Seasonally Adjusted, Percent)
Female
Male
Female
24
22
20
18
Male (right axis)
19
60
18
59
17
58
16
57
15
56
14
55
13
54
12
53
16
12
10
Source: TurkStat, CBRT.
1210
0710
0210
0909
0409
1108
0608
0108
0807
0307
1006
0506
1205
0705
0205
8
0205
0705
1205
0506
1006
0307
0807
0108
0608
1108
0409
0909
0210
0710
1210
14
Source: TurkStat, CBRT.
As of the end of 2010, non-farm male unemployment is 0.6 percentage points
higher from end-2007 (Table 1). The increases in employment as well as the falling
participation rate brought male unemployment down during this period (Chart 2).
Employment and labor force participation contributed by -3.6 and -0.2
percentage points, respectively, to the decline in male unemployment. Female
non-farm unemployment is 3.5 percentage points above the pre-crisis level,
mainly due to the increase in female labor force participation (Table 1).
Inflation Report 2011-II
45
Central Bank of the Republic of Turkey
All in all, as of end-2010, non-farm unemployment is 1.4 percentage points above
the end-2007 level. Female unemployment, male unemployment and rising
female labor force participation accounted for about 0.7, 0.5 and 0.2
percentage points of this difference, respectively.
Table 1. Contributions to Changes in Non-Farm Unemployment
(Percent, December 2007-December 2010)
Total
Participation
Rate
Population
Growth
Employment
Growth
Female
3.5
15.8
3.9
-16.2
Male
0.6
-0.2
4.4
-3.6
Total
1.4
3.6
4.2
-6.4
Source: TurkStat, CBRT.
This gender gap is also evident across sectors. On the employment side, the 2008
global crisis has particularly affected the industrial sector. Men suffered the most
job loss as they comprise a larger share of non-farm employment and the
industrial sector is the hardest-hit-sector by the crisis. On the other hand, in the
relatively less affected services sector, female employment continued to
increase. While female employment continued to rise during the recovery
process, the loss of employment for men during the crisis is compensated. As a
result, non-farm male employment increased by a net 319 thousand during and
after the crisis, while the contribution of women to non-farm employment rose to
528 thousand (Charts 3 and 4). A substantial part of female employment that
increased during the crisis is self-employed and unregistered (Charts 5 and 6).
Chart 3.
Changes in Non-Farm Employment
Chart 4.
Non-Farm Employment
(Seasonally Adjusted, Thousand)
(Seasonally Adjusted, 2008Q2=100)
Male
Female
Female
Male
115
110
105
100
95
90
85
Crisis
(June 2008 April 2009)
Source: TurkStat, CBRT.
46
Total
120
1200
1000
800
600
400
200
0
-200
-400
-600
-800
Post-Crisis
June 2008 (April 2009 - December 2010
December
2010)
80
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2006
2007
2008
2009
2010
Source: TurkStat, CBRT.
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 5.
Female Non-Farm Employment
Chart 6.
Unregistered Non-Farm Employment
(Seasonally Adjusted, Million)
(Seasonally Adjusted, Million)
Payroll Employment
Total
Self Employment (right axis)
4.3
Female
Male (right axis)
1.3
1.0
4.4
1.2
3.8
0.8
3.3
0.6
2.8
0.4
2.3
0.2
1.1
4.2
1.0
0.9
4.0
0.8
0.7
3.8
0.6
1.8
0.0
0.5
123412341234123412341234
2005
2006
2007
2008
2009
3.6
123412341234123412341234
2010
2005
Source: TurkStat, CBRT.
2006
2007
2008
2009
2010
Source: TurkStat, CBRT.
The gender gap has also affected sectoral unemployment rates. Indeed, while
industrial and construction sectors were severely hit by the crisis, services sector
was moderately affected (Chart 7).
1
Employment losses in the industrial sector
and rising labor force participation in construction and services sectors were the
main drivers of unemployment. The most affected sector by labor force
participation is the services sector with limited employment losses.
Although services unemployment is relatively less affected, the recent decline in
this sector has been more limited compared to other sectors (Chart 7). Female
labor force has been the main factor causing services unemployment to remain
above pre-crisis levels. As of end-2010, non-farm unemployment is up 19.3 percent
from end-2007, with the services sector accounting for a significant portion (17.1
percentage points) of this increase (Chart 8). Women account for a larger share
of the rising number of unemployed in the services sector.
Chart 7.
Sectoral Unemployment Rates
Chart 8.
Contributions to Changes in Non-Farm
Unemployment in 2007Q 4 – 2010Q4 (Percent)
(Seasonally Adjusted, Million)
Female
Industry
20
Male
12
Services
10.8
35
Construction (right axis)
9.3
10
8.5
30
7.8
8
15
25
20
10
Source: TurkStat, CBRT.
1110
0610
0110
0809
0309
1008
0508
1207
0707
0207
0906
0406
1105
0605
0105
5
6
4
15
2
10
0
1.5
0.8
Industry and
Construction
Services
Total
Source: TurkStat, CBRT.
The calculation of sectoral unemployment rates is based on the sectors the job-seekers had worked prior to becoming
unemployed. First-time job-seekers are not included in the calculations.
1
Inflation Report 2011-II
47
Central Bank of the Republic of Turkey
In sum, non-farm unemployment remains above pre-crisis levels as of the end of
2010, largely due to increasing female labor force participation. Although the
crisis had a less negative effect on women's employment, increases in
employment failed to meet the change in labor force participation. As women
had a major impact on non-farm labor force participation, changes in the
contribution of female population to labor force and employment may have
various implications for the rate of decline in unemployment. The following charts
show the effects of the different paths of non-farm labor force participation on
non-farm unemployment, based on the assumption of an ongoing gradual
increase in non-farm employment (Charts 9 and 11). Accordingly, if participation
increases mildly, non-farm unemployment reaches pre-crisis levels by mid-2012. If
participation grows rapidly, it will take longer to reach pre-crisis levels.
Chart 9.
Non-Farm Employment Projection
Chart 10.
Non-Farm Labor Force/15+ Population
Projection
(Seasonally Adjusted, Million)
(Seasonally Adjusted, Percent)
Mild Growth
19.0
Rapid Growth
40
18.5
39
18.0
17.5
38
17.0
16.5
37
16.0
36
15.5
15.0
35
14.5
14.0
2007 2008 2009 2010 2011 2012 2013
Source: TurkStat, CBRT.
34
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: TurkStat, CBRT.
Chart 11.
Non-Farm Unemployment Projection
(Seasonally Adjusted, Percent)
Mild Growth
Rapid Growth
20
19
18
17
16
15
14
13
12
11
10
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: TurkStat, CBRT.
48
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Overall,
the rapid post-crisis increase in female labor force participation has
limited the decline in unemployment, particularly in the services sector. This has
also limited the increase in labor costs. An evidence to this is the relatively low
services inflation despite the recent upsurge in domestic demand.
Inflation Report 2011-II
49
Central Bank of the Republic of Turkey
50
Inflation Report 2011-II
Central Bank of the Republic of Turkey
5. Financial Markets and Financial
Intermediation
5.1. Financial Markets
The first-quarter data indicate that the global economy continues to
recover. Coupled with soaring commodity prices, this has heightened upside
risks to inflation across many economies and led to stronger expectations that
monetary policy normalization would start earlier than expected in advanced
economies. However, downside risks to global economic activity are weaker,
but still present. Indeed, the contribution of private consumption and
investment spending to the recovery in advanced economies has yet to reach
the desired level. Moreover, the ongoing uncertainty about debt sustainability
in the first quarter and rising commodity prices pose substantial risk to global
recovery.
Despite uncertainties about the recovery in advanced economies,
emerging economies remained robust in the first quarter, adding to the upward
pressure on inflation. As a result, emerging economies continued to tighten
monetary policy in the first quarter. In this regard, many emerging market
central banks continued to raise policy rates and actively used non-interest
monetary policy tools, such as required reserve ratios, to contain the risks to
financial stability arising from large capital inflows.
The ongoing concerns about the European sovereign debt problem and
the political tension in the MENA region caused global risk sentiment to
fluctuate in the first quarter (Chart 5.1.2). This has affected emerging market risk
premiums. Turkey's risk premium had a relatively negative performance in this
period, while the deterioration became more evident due to escalated
problems in MENA (Chart 5.1.1). The main reason for the small rise in Turkey's risk
premium was the concurrence of higher oil prices and the growing current
account deficit in Turkey. Moreover, it is likely that the proximity and the region's
larger share in Turkey's total exports than other peer countries increased Turkey’s
vulnerability to the tensions in the region.
Inflation Report 2011-II
51
Central Bank of the Republic of Turkey
Chart 5.1.1.
Chart 5.1.2.
Regional CDS Indices (December 2010 = 1)
EMBI
Turkey
Latin America
Asia
Europe
EMBI+ Turkey
EMBI+
900
1.3
800
1.2
700
1.1
600
500
1
400
0.9
300
0.8
200
0411
0111
1010
0710
0410
0110
1009
0709
0409
0109
1008
0411
0411
0311
0311
0211
0211
0111
0111
1210
1210
1210
Source: Bloomberg, CBRT.
0708
100
0.7
Source: Bloomberg.
Despite the volatile global risk sentiment, the main factor affecting
financial markets in Turkey during the first quarter was the CBRT's launch of a
policy mix in the last quarter of 2010. The fact that short-term capital inflows
created a greater imbalance between domestic and external demand growth
led to a rapid increase in the current account deficit and warranted adopting
macroprudential measures. Underlying inflation remained consistent with
medium-term targets, allowing monetary policy to focus on macro financial
stability. With the new policy mix of low policy rates, wide interest rate corridor
and high required reserve ratios, 1-week repo rate, the reference policy rate,
was reduced from 7 to 6.25 percent following the December 2010 and January
2011 MPC meetings (Chart 5.1.4). In addition to policy rate cuts, the CBRT's
overnight borrowing rate was lowered by 450 basis points to 1.5 percent in the
same period. The corridor between O/N borrowing and lending rates was
widened to allow for fluctuations in short-term interest rates when needed.
These decisions aimed to extend the maturity of short-term capital inflows as
well as to prevent the Turkish lira from becoming detached from economic
fundamentals.
One of the intermediate targets of the new policy mix has been to slow
down credit growth to avoid the build-up of macro financial imbalances. In this
context, required reserve ratios were decided to be used as an active policy
tool, and were raised significantly and allowed to vary across maturities in
December 2010 and January, March and April 2011, with lower ratios for longerterm maturities (Chart 5.1. 3). This decision aimed to slow down credit growth
52
Inflation Report 2011-II
Central Bank of the Republic of Turkey
through liquidity and cost channels and increase the maturity of the banking
system’s liabilities, thereby reducing maturity mismatches (Box 5.1).
Chart 5.1.3.
Chart 5.1.4.
TL Required Reserves Ratios
CBRT Interest Rates
O/N Lending - Borrowing Interest Rate Corridor
Maximum and Minimum Reserve Requirement
Ratios
Weighted Average of TL Reserve Requirement
Ratios
18
16
1-week Repo Rate
25
20
Adoption of 1-week repo
rate as the policy rate
14
12
15
10
8
10
6
4
5
2
0
0411
0111
1010
0710
0410
0110
1009
0709
0409
0109
1008
0708
0408
0108
0411
0111
1010
0710
0410
0110
1009
0709
0
Source: CBRT.
Source: CBRT.
The CBRT's adoption of a new policy mix raised the volatility in short-term
money market rates significantly (Charts 5.1.5 and 5.1.6). During this period, the
CBRT concluded that a higher volatility in short-term money markets would be
necessary to both enhance the efficiency of required reserve ratios and extend
the maturity of foreign capital, and took this into consideration in liquidity
operations. Moreover, the increased volatility is also believed to reflect the
mounting uncertainty arising from the policy adaptation process.
Chart 5.1.5.
Chart 5.1.6.
Volatility of O/N Repo Rates
Volatilities of CCS Rates
(20-Day Standard Deviation)
Source: ISE, CBRT.
Inflation Report 2011-II
0411
0111
3-Month
1210
0
1110
0.1
0
1010
0.2
0.2
0810
0.4
0411
0.3
0311
0.6
0211
0.4
0111
0.8
1210
0.5
1110
1
1010
0.6
0910
1.2
0810
1.4
0910
1-Month
0.7
0311
1.6
0211
(20-Day Standard Deviation)
Source: Bloomberg, CBRT.
53
Central Bank of the Republic of Turkey
The CBRT's new policy mix continued to affect short-term foreign capital
flows in the first quarter. Indeed, comprising a significant portion of short-term
CCS transactions, the amount of short-term foreign capital decreased
dramatically with the launch of these measures. This is also evident in domestic
banks' net off-balance sheet foreign currency positions, an important indicator
of the volume of CCS by non-residents (Chart 5.1.8). Furthermore, the
deteriorated risk sentiment led to a limited foreign capital outflow from the stock
market in the first quarter, while there has been an accelerated foreign capital
inflow to the GDBS market (Chart 5.1.7). The increased foreign capital flow into
the GDBS market is believed to be led by foreign investors fleeing from shortterm CCS transactions towards longer-term GDBS market securities and by
higher market rates since the adoption of the new measures.
Chart 5.1.7.
Chart 5.1.8.
Net Portfolio of Non-Residents*
Banking Sector Off-Balance Sheet FX Position
(Adjusted for Index and Interest Rate, Million USD)
(Billion USD)
Stocks
GDBS
26
3500
24
2500
22
1500
20
500
18
16
-500
14
-1500
12
* As of April 15, 2011.
Source: CBRT.
0311
0311
0211
0211
0111
0111
1210
1210
1110
1110
1010
1010
10
1010
0411
0211
1210
1010
0810
0610
0410
0210
1209
1009
0809
0609
0409
0209
-2500
Source: BRSA.
Lower required reserve ratios for longer-term maturities, as allowed by the
new policy mix, extended the average maturity of TL bank deposits
(Chart
5.1.9). Moreover, the costs of deposits increased while maturities
shortened, causing the yield curve of TL savings deposits to steepen
(Chart 5.1.10). In line with the CBRT's targets, the yield variation across maturities
of deposits, the largest source of financing for the Turkish banking sector, and
the increase in average maturities are expected to continue into the upcoming
period.
54
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 5.1.9.
Chart 5.1.10.
Average Maturity of TL Deposits
Yield Curve of TL Savings Deposits
Required Reserve
Ratio Decision in
December
60
10.12.2010
31.12.2010
15.04.2011
7.4
58
7.2
56
7
54
52
6.8
50
6.6
48
46
6.4
44
6.2
0411
0311
0311
0211
0111
1210
1210
1110
1010
1010
0910
0810
0810
0710
0610
42
6
1
Source: CBRT.
2
3
4
Source: CBRT.
The CBRT's monetary policy actions put upward pressure on market rates.
Amid higher global interest rates in the first quarter, market rates increased
much faster in Turkey than the general pace across other emerging economies
(Chart 5.1.11). The increase in market rates reflects the restrictive impact of the
CBRT's new policy mix and the recently adopted prudent monetary policy. In
addition, the early first-quarter market uncertainty about the path of this new
policy mix is also believed to have driven market rates higher.
Chart 5.1.11.
Chart 5.1.12.
First-Quarter Changes in 2-year Market Rates
Yields on GDBS
ISE Bonds and Bills Market Interest Rate (percent)
2
EMBI+Turkey (right axis)
1.5
11
400
1
350
10
0.5
300
0
9
250
-0.5
8
-1
200
Source: Bloomberg, CBRT.
7
150
0411
0211
0311
0111
1110
1210
0910
1010
0810
0610
0710
0410
0510
100
0210
0310
6
0110
Turkey
Peru
Chile
Philippines
Mexico
Colombia
Poland
Brazil
Thailand
S. Korea
S. Africa
Czech Rep.
Malaysia
Indonesia
Romania
India
China
Hungary
-1.5
Source: ISE, Bloomberg, CBRT.
The rise in market rates is also attributed to the slight increase in inflation
expectations. In fact, rising prices of oil, food and other imported products and
the weak Turkish lira caused 12-month ahead inflation expectations to increase,
albeit modestly (Chart 5.1.14). Furthermore, the CBRT's adoption of a more
cautious stance and shift towards a tighter monetary policy led to an increase
Inflation Report 2011-II
55
Central Bank of the Republic of Turkey
in future policy rate expectations (Chart 5.1.13). This increase seems to have a
limited effect on market rates.
Chart 5.1.13.
Chart 5.1.14.
12-Month Ahead CBRT Repo Rate Expectations
12-Month Ahead CPI Inflation Expectations
January 2011
January 2011
0.8
0.9
April 2011
April 2011
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0
0
5
6
7
8
9
4
10
* Calculated by non-parametric Kernel estimation.
Source: CBRT.
5
6
7
8
9
10
Source: CBRT.
The increase in market rates is more significant across shorter maturities
and more limited across longer maturities. Therefore, the yield curve flattened
quarter-on-quarter (Charts 5.1.15 and 5.1.16).
Chart 5.1.15.
Chart 5.1.16.
Yield Curve*
Interest Rate Spread*
April 22, 2011
3.8
January 24, 2011
3.4
9
3.0
8.5
2.2
7.5
1.8
1.4
7
1.0
6.5
0.6
6
* Calculated from the compounded returns on bonds quoted in ISE
Bonds and Bills Market by using Extended Nelson Siegel (ENS) method.
Source: ISE, CBRT.
0411
4
0211
3.5
1210
2.5
3
Maturity (year)
1010
2
0810
1.5
0610
1
0410
0.2
0.5
0210
Yield (percentage
2.6
8
* Spread between 4-year and 6-month yields derived from the ENS yield
curve, 5-day moving average.
Source: ISE, CBRT.
The increase in market rates is more pronounced across shorter maturities
as the CBRT's shift towards net tightening has a greater effect on short- and
medium-term interest rates. Indeed, after renewed required reserve ratios,
banks tended to sell short-term GDBS to meet their increasing liquidity needs
(Chart 5.1.17). As a result, the share of GDBS in domestic banks' balance sheets
decreased, boosting foreign ownership in this market (Chart 5.1.18). Meanwhile,
56
Inflation Report 2011-II
Central Bank of the Republic of Turkey
the main determinants of long-term market rates are long-term structural
dynamics of the economy, such as long-term sovereign riskiness. Despite the
volatile global risk sentiment, long-term interest rates remained relatively stable
at historically low levels, reflecting prospects of a prolonged period of low
interest rates in Turkey.
Chart 5.1.17.
Chart 5.1.18.
Share of Securities in Banking Sector Balance
Sheet(Percent)
Share of Non-Residents in GDBS Market
16
37
36
15
35
14
34
33
13
32
12
31
30
11
29
Source: BRSA, CBRT.
0411
0311
0211
0111
1210
1110
1010
0910
0810
0411
0211
1210
1010
0810
0610
0410
0210
1209
1009
0809
0609
0710
10
28
Source: CBRT.
The market rate increase spilled over into real interest rates, leading to
higher real interest rates in Turkey than in other emerging economies
(Chart 5.1.20). The rise in real interest rates indicates that the net impact of the
CBRT's recent policy mix decisions is restrictive.
Chart 5.1.19.
Chart 5.1.20.
2-Year Real Interest Rates for Turkey*
2-Year Real Interest Rates*
(Percent)
8
3.5
7
6
3.0
5
2.5
4
3
2.0
2
1.5
1
0
1.0
-1
0411
0211
0311
0111
1110
1210
0910
1010
0810
0610
0710
0410
0510
0210
0310
0110
0.0
* Calculated as the 2-year discounted bond returns derived from the
yield curve, minus the 2-year ahead CPI inflation rate in the CBRT's
Survey of Expectations.
Source: ISE, CBRT.
Brazil
Turkey
Hungary
Romania
Chile
Colombia
S. Africa
Poland
Mexico
Peru
Israel
Malaysia
S. Korea
Indonesia
Philippines
Thailand
Czech Rep.
China
-2
0.5
* Calculated as the 2-year government bond returns of countries minus
the 2-year ahead inflation rate in Consensus Forecasts.
Source: Bloomberg, Consensus Forecasts, CBRT.
The CBRT's policy decisions also affected exchange rates. Indeed,
following the release of the November 2010 Financial Stability Report, the Turkish
Inflation Report 2011-II
57
Central Bank of the Republic of Turkey
lira began to depreciate, contrary to the general trend of other emerging
market currencies (Chart 5.1.22). Recently, the reduced regional risk and
soaring market rates offset some of the relative depreciation of the Turkish lira.
Chart 5.1.21.
Chart 5.1.22.
TL Currency Basket and Risk Premium Indicators
TL and Emerging Market Currencies*
(Percent)
(October 2010=1)
TL/ Currency Basket (0.5 USD+0.5 euro)
Turkey
Emerging Economies
EMBI+Turkey (right axis)
2.1
2
1000
1.16
900
1.13
800
1.9
700
1.8
600
1.7
500
1.1
1.07
1.04
1.01
400
0411
0311
0.92
0211
100
0111
0.95
1210
200
0411
0111
1010
0710
0410
0110
1009
0709
0409
0109
1008
0708
0408
0108
1.4
0.98
1110
300
1.5
1010
1.6
* Average of emerging market currencies, including Brazil, Chile, Czech
Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South
Korea and Colombia, against USD.
Source: Bloomberg, CBRT.
Source: Bloomberg, CBRT.
Notwithstanding the recent volatility, the Turkish lira remains among
emerging market currencies with low long-term implied volatility, owing mainly
to the improved post-crisis investor sentiment toward Turkey (Chart 5.1.23). On
the other hand, the short-term implied volatility of the Turkish lira increased
slightly after the CBRT's policy mix decisions (Chart 5.1.24). This is expected to
discourage short-term capital flows. The fact that volatility is more evident for
shorter maturities is a result of the perceptions that exchange rate uncertainty is
temporary.
Chart 5.1.23.
Chart 5.1.24.
Implied Volatility of Exchange Rates
Implied Volatility of Exchange Rates
(12-month)
(1-month)
50
45
40
Exchange rate
volatility in
emerging
economies
45
Exchange rate
volatility in emerging
economies
40
Turkey
35
35
Turkey
30
30
25
25
20
20
15
10
15
5
10
Source: Bloomberg, CBRT.
58
0411
0211
1210
1010
0810
0610
0410
0210
1209
1009
0809
0609
0409
0209
0411
0211
1210
1010
0810
0610
0410
0210
1209
1009
0809
0609
0409
0209
0
Source: Bloomberg, CBRT.
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Following the recent improvement in financial markets, monetary
indicators also reflect the robust economic activity. In fact, the balance sheet
decomposition of the broad measure of money supply, M3, showing the total
consolidated liabilities of the monetary sector, including the CBRT and the
banking sector, indicate that Claims on Private Sector, mostly consisting of bank
loans to non-financial private individuals and institutions, continue to grow
strongly amid increased consumer and investor confidence. Moreover, the
slowdown in the contribution of Claims on Public Sector to the M3 growth since
end-2009 paused in the last quarter. Net External Assets continue to fall due to
the increase in commercial banks' external borrowing. Lastly, the negative
contribution of the item Other, i.e. the monetary sector's non-deposit resources,
to the M3 growth has slightly decreased amid reduced bank profitability
(Chart 5.1.25).
Chart 5.1.25.
Balance Sheet Decomposition of M3
(Contributions to Annual M3 Growth)
4.Other
3.Claims on Private Sector
2.Claims on Public Sector
1.Net External Assets
1+2+3+4=M3 (Annual Percent Change)
50
40
30
20
10
0
-10
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
1207
0907
0607
0307
1206
-20
Source: CBRT.
The stable economic growth was also reflected in the monetary base
during the first quarter, leading to a real year-on-year growth in the monetary
base. During this period, the currency in circulation continued to increase
steadily, while the monetary base expansion was largely driven by the increase
in banks' deposits at the CBRT (Chart 5.1.26). Indeed, the hike in TL required
reserve ratios led to a sharp increase in banks' deposits.
Inflation Report 2011-II
59
Central Bank of the Republic of Turkey
Chart 5.1.26.
Annual Growth of the Real Monetary Base
(Percent)
Net Impact of the Changes in Currency in Circulation
Net Impact of the Changes in Banks' Deposit
Annual Growth Rate of the Real Monetary Base
70
60
50
40
30
20
10
0
0311
1210
0910
0610
0310
1209
0909
0609
0309
1208
0908
0608
0308
1207
0907
0607
0307
1206
0906
0606
0306
-10
Source: CBRT.
The upward trend of the money in circulation, another component of the
monetary base, may be attributable to the increase in consumer spending
amid economic recovery. Moreover, the ongoing strong uptrend in the
seasonally adjusted figures for money in circulation during the first quarter
suggests that consumption spending continues to support economic recovery
(Chart 5.1.27). The stable post-crisis growth in money in circulation may also be
attributed to historically low nominal interest rates, i.e. the opportunity cost of
holding cash.
Chart 5.1.27.
Currency in Circulation and Current Consumption Spending*
(Seasonally Adjusted)
Current Consumption Spending (Annual Percent Change)
Currency in Circulation (Annual Percent Change)
Currency in Circulation (right axis)
Percent
Billion TL
30
55
25
50
20
45
15
40
10
35
5
30
0
25
1
2
3
2008
4
1
2
3
2009
4
1
2
3
2010
4
1
2011
* Consumption spending includes private consumption and public consumption excluding
furniture, household appliances, transport and communication at current prices.
Source: TurkStat, CBRT.
60
Inflation Report 2011-II
Central Bank of the Republic of Turkey
The CBRT's measures and the volatile global risk sentiment caused foreign
capital inflows to decelerate in the first quarter. As a result, the amount of
foreign currency withdrawn from the market through FX buying auctions
decreased significantly quarter-on-quarter to USD 2.7 billion. FX buying auctions
helped reduce the interbank liquidity shortage. Meanwhile, the Treasury's
average account balance at the CBRT decreased quarter-on-quarter, easing
the liquidity shortage. However, the moderate increase in money in circulation
and particularly the notable hike in banks' required reserves caused the net
liquidity gap of the banking system to widen quarter-on-quarter (Chart 5.1.28).
Chart 5.1.28.
Market Liquidity
(Billion TL)
Interbank Money Market and Reverse Repo
1-week Repo
3-month Repo
Net Liquidity
35
25
15
5
-5
-15
0311
0111
1110
0910
0710
0510
0310
0110
1109
0909
0709
0509
-25
Source: CBRT.
5.2. Financial Intermediation and Loans
Real sector loans by domestic banks continued to accelerate in the first
quarter of 2011, albeit at a slightly slower pace (Chart 5.2.1). Business loans and
consumer loans grew by an annualized 29 and 41 percent, respectively, while
real sector loans increased by 33 percent. The slower growth in business loans
was largely due to the more significant year-end balance sheet corrections for
business loans. Indeed, the gap between the consumer and business loan
growth closed remarkably in March. Overall, the loans to GDP ratio appears to
have remained on the rise in the first quarter (Chart 5.2.2).
Inflation Report 2011-II
61
Central Bank of the Republic of Turkey
Chart 5.2.1.
Chart 5.2.2.
Loans
Loans to GDP*
(Nominal, January 2007 = 100)
(Percent)
Household Loans
Real Sector Loans
Business Loans
Household Loans
Business Loans
280
50
260
45
240
40
220
35
200
30
180
25
160
20
140
15
120
10
100
5
0107
0407
0707
1007
0108
0408
0708
1008
0109
0409
0709
1009
0110
0410
0710
1010
0111
0411
80
1
2
3
4
1
2007
2
3
4
1
2
2008
3
4
1
2009
2
3
2010
4
1
2011
* Real sector loans are composed of household loans and business loans. Estimate for the 2011Q1 GDP.
Source: CBRT.
The rapid post-crisis growth in loans has mostly been driven by the
improved risk perceptions of financial institutions and the resulting decrease in
credit risk aversion. This led to a dramatic increase in business loans amid rising
loan demand. The impact of the improved risk sentiment on business loans is
evident across all firm sizes and loan maturities. Indeed, small business loans
falling into a higher-risk category increased at a faster pace than large-scale
business loans. As a result, the share of small business loans in total loans
exceeded pre-crisis levels (Charts 5.2.3 and 5.2.4).
Chart 5.2.3.
Chart 5.2.4.
TL Business Loans by Firm Size
FX Business Loans by Firm Size*
(Nominal, January 2007 = 100)
Large
Micro
(Nominal, January 2007 = 100)
Small
Large
Medium
Micro
Small
Medium
430
330
380
280
330
230
280
230
180
180
130
130
Source: BRSA.
0111
1010
0710
0410
0110
1009
0709
0409
0109
1008
0708
0408
0108
1007
0707
0407
80
0107
0107
0407
0707
1007
0108
0408
0708
1008
0109
0409
0709
1009
0110
0410
0710
1010
0111
80
* Data adjusted for exchange rate.
Source: BRSA.
The improved risk perceptions of financial institutions have also affected
the maturity distribution of business loans. In fact, the share of short-term loans
with lower interest rate risk in total loans continued to decline in the first quarter.
62
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Therefore, the average maturity of business loans surpassed the pre-crisis levels
(Charts 5.2.5 and 5.2.6).
Chart 5.2.5.
Chart 5.2.6.
TL Business Loans by Maturity
FX Business Loans by Maturity
(Nominal, January 2007 = 100)
<12-month
(Nominal, January 2007 = 100)
12-24 month
>24-month
<12-month
360
440
320
400
12-24 month
>24-month
360
280
320
240
280
200
240
200
160
160
120
120
80
Source: TurkStat, CBRT.
0107
0407
0707
1007
0108
0408
0708
1008
0109
0409
0709
1009
0110
0410
0710
1010
0111
0107
0407
0707
1007
0108
0408
0708
1008
0109
0409
0709
1009
0110
0410
0710
1010
0111
80
Source: TurkStat, CBRT.
After a steady uptrend in 2010, the share of FX business loans in total
business loans continued to increase in the first quarter of 2011 (Charts 5.2.7 and
5.2.8). In this context, there has been a notable growth in FX loans granted to
SMEs and micro-scale enterprises (Chart 5.2.4). This trend should be closely
monitored as it implies an increased FX risk for firms and an increased credit risks
for banks.
Chart 5.2.7.
Chart 5.2.8.
Weekly Growth of TL and FX Business Loans
FX Business Loans to Total Business Loans
(13-Week Average)
TL Business Loans
44
FX Business Loans (including foreign branches)
2
1
40
0
Source: CBRT.
0111
0910
0510
0110
0909
0509
0109
0908
0508
0108
0907
0507
36
0107
0111
0411
1010
0710
0110
0410
1009
0709
0109
0409
1008
0708
0108
0408
1007
0707
0107
0407
-1
Source: CBRT.
Credit market indicators show that both supply and demand conditions
were the drivers of credit expansion. Despite the robust growth in credit volume
and the additional costs of decisions on required reserves, loan rates have yet
to increase markedly, pointing to a strong credit market competition on the
Inflation Report 2011-II
63
Central Bank of the Republic of Turkey
supply side (Chart 5.2.9). Notwithstanding the post-crisis growth in FX credit
volume, the spread between FX business loan rates and deposit rates has yet to
increase significantly, again pointing to the support of supply conditions for
credit expansion. This is also confirmed by the fourth-quarter results of the
lending survey. According to the survey, banks expect SME lending standards to
ease slightly in the first quarter.
Chart 5.2.9.
Chart 5.2.10.
TL Business Loan Rates
FX Business Loan Rates
(Annualized, 4-Week Average)
(Annualized, 4-Week Average)
Business Loan Rate - Deposit Rate
FX Business Loan Rate
Business Loan Rate (right axis)
12
FX Business Loan Rate - FX Deposit Rate
25
23
10
12
10
21
19
8
8
17
6
15
13
4
11
9
2
6
4
2
7
Source: CBRT.
0111
0910
0510
0110
0909
0509
0109
0908
0508
0
0108
5
0206
0606
1006
0207
0607
1007
0208
0608
1008
0209
0609
1009
0210
0610
1010
0211
0
Source: CBRT.
There are indicators suggesting that demand-side factors have also
played a major role in the growth of business loans, especially FX business loans.
The 2010 Fall-term results of the investment survey mentioned in the January
Inflation Report pointed to a marked increase in the investment demand of
enterprises. In line with the survey, private investment spending accelerated at
a record pace in the last quarter of 2010. Furthermore, the lending survey for the
banking sector also indicate that the demand for business loans was higher in
the last quarter and would rise further in the first quarter. In view of the fact that
investment loans are often denominated in foreign currencies and the
assumption that business loans are recently demanded to finance the growing
investment spending, it is possible to state that demand-side factors played a
major role in the sharp increase in FX loans.
During the final quarter of 2010, the year-end balance sheet adjustments
and the BRSA's renewed loan/value ratio effective January 1 resulted in a
significant acceleration in consumer loans. Subsequently, after a temporary
slowdown in January, the rapid growth of consumer loans continued into
February and March. During this period, automobile loans, accounting for less
than 10 percent of consumer loans, diverged from the general trend in
64
Inflation Report 2011-II
Central Bank of the Republic of Turkey
consumer loans. In fact, after a record surge in the fourth quarter, the increase
in automobile loans slowed significantly during January and February. Against
this background, consumer loans increased by more than 41 percent year-onyear in the first quarter, while home, other and automobile loans were up 37, 47
and 31 percent, respectively (Chart 5.2.11).
Chart 5.2.11.
Weekly Growth Rates of Consumer Loans
(13-Week Average)
Housing
Automobile
Other
1.5
1.0
0.5
0.0
-0.5
-1.0
0411
0211
1210
1010
0810
0610
0410
0210
1209
1009
0809
0609
0409
0209
1208
1008
0808
0608
-1.5
Source: CBRT.
Despite the rapid increase in consumer loans during the first quarter, loan
rates remained mostly flat. The stable course of consumer loan rates vis-à-vis the
increase in long-term market rates reflects the intense competition in the market
(Chart 5.2.12). On the other hand, the economic recovery and the increased
consumer confidence boost the demand for consumer loans and support loan
growth. The uptrend in the consumer confidence index and the ongoing
improvement in employment conditions suggest that the demand for consumer
loans may remain robust in the upcoming period.
Chart 5.2.12.
Consumer Loan Spread over CCS Rates
Consumer Loan Rate - 2-year CCS Rate
Housing Loan Rate - 5-year CCS Rate
12
10
8
6
4
2
0
0211
1010
0610
0210
1009
0609
0209
1008
0608
0208
1007
0607
0207
1006
0606
0206
1005
0605
-2
Source: CBRT.
Inflation Report 2011-II
65
Central Bank of the Republic of Turkey
As of the turn of the year, external borrowing is the most important source
of funding for banks. On the other hand, deposits, the primary source of funding
for banks, increased only modestly during the first two months of the year,
accounting for only about 32 percent of the credit expansion. During this
period, the amount of newly issued securities accounted for almost 8 percent of
the increase in loans.
Table 5.2.1.
Changes in Main Balance Sheet Items
(Million TL)
2010Q4
Assets
Liabilities
Loans
Securities
Cash+Required Reserves+Receivables from Central Bank
Receivables from Banks
Deposits (Participation Funds)
Payables to Banks
Funds from Repo Transactions
Securities Issued (Net)
Total Equity
TL
30866
10344
7260
3545
40480
5468
3725
1095
7833
FX
19581
2806
5755
-6750
3538
15451
1982
94
-160
January-February 2011
TL
13051
-2548
21348
-359
7313
-796
12748
2269
768
FX
13362
334
386
-8
1154
7292
3931
771
-561
Source: BRSA.
Another noteworthy development in the banking sector was the
contraction in banks' security portfolios, corresponding to 8 percent of the
credit growth. During this period, banks sold some of their GDBS to meet the
need for additional liquidity due to required reserve adjustments. This indicates
increased tendency of banks to change their asset composition rather than
using CBRT funds to meet their liquidity needs. The weakening substitution
between CBRT funding and other sources of funding is very important in terms of
the effectiveness of required reserve adjustments. This may cause banks to be
more cautious on lending over the upcoming period.
In sum, both business loans and consumer loans continued to rise rapidly
in the first quarter. Loan growth was driven by both supply-side and demandside factors. On the supply side, the intense competition in credit markets cause
supply conditions to remain loose. On the other hand, the positive course of
economic activity, the improvement in employment conditions, and hence, the
growing optimism about the economic outlook help boost the loan demand.
Credit markets have already started to reflect the first round effects of the
decisions on required reserves intended to restrain the rapid credit growth.
These effects are expected to become more pronounced in coming months.
Indeed, the fact that banks changed their asset composition to meet their
need for additional liquidity following the latest decision is a key indicator that
the restrictive effects of the required reserve hike will be more significant in the
upcoming period (Box 5.2).
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
Box
5.1
The
Credit Expansion and the Current Account Deficit
ample global liquidity driven by the post-crisis extraordinary expansionary
monetary policies of advanced economies led to strong capital flows into
emerging economies. Although higher credit growth rates relative to advanced
economies are normal in emerging economies which are at the initial stages of
financial deepening, it should be noted that rapid credit expansion could
hamper financial stability beyond a certain point for country experiences show
that rapid credit growth is a leading indicator for major banking and balance of
payments crises. Therefore, it is highly crucial to monitor credit growth closely. In
this context, this Box analyzes the relationship between credit expansion and
financial crises, and gives a brief account of the relavant findings in the
economics literature. Finally, the recent rapid credit expansion in Turkey and the
widening current account deficit are discussed, and the CBRT's corresponding
measures are listed accordingly.
Many
studies in the economics literature have concluded that rapid credit
growth is a leading indicator for balance of payments and banking crises. 1 Rapid
credit growth can hamper macroeconomic stability by damaging external
balance and the stability in FX markets. In other words, a sudden contraction in
external funds exposes the banking system's FX liquidity to a negative shock, and
consequently leads to a financial and economic crisis. This fact was experienced
by advanced and emerging economies in the past.
2
In addition, rapid credit
growth has the potential to affect financial stability directly. Still having spillover
effects, the latest global crisis is the most recent experience. The extremely
competitive environment in times of easier access to funds and lower cost of
funding reduces banks' susceptibility to risk. Moreover, when loans grow rapidly
both in volume and number, it is very difficult to make sound assessments about
the inherent risks. Another mechanism that may cause credit growth to evolve
into a threat to financial stability is through the "financial accelerator" such that
excessive optimism for the future and rising asset prices during rapid economic
growth not only have a positive effect on loan demand but also increase banks'
willingness to lend. This cycle is reversed if an economy begins to underperform
due to a negative shock, leaving the financial system vulnerable to a crisis.
1
2
See Borio and Lowe (2002), Jorda et al. (2010).
See Hilbers et al. (2005).
Inflation Report 2011-II
67
Central Bank of the Republic of Turkey
Credit growth cycles resulting in a crisis are found to have similarities. Rapid credit
expansions occur around the same time in similar countries, that is, they are
synchronized. This finding points to a common external factor, such as capital
flows. In addition, more than 50 percent of rapid credit growth cycles is
associated with strong capital flows. Of rapid credit expansions, 75 percent is
associated with the banking crisis while 85 percent is associated with the current
account deficit. Moreover, banks have increased external borrowing by
changing their balance sheet composition in this process. 3
The
recent Jorda et al. (2010) study analyzed whether the current account
balance, alongside other economic fundamentals, contains any information on a
possible financial crisis. To this end, a data set for 14 developed countries over the
1870-2008 period is used to build a logit model to determine the variables
affecting the likelihood of a financial crisis.
4
The rapid credit expansion in the last
five years is found to be an important indicator for the risk of experiencing a
financial crisis. Although the current account deficit is also predictive of a
financial crisis, it is not as statistically significant as credit expansion. As changes in
global capital flows during the past 35 years may make long-term comparisons
problematic, the analysis focuses on post-1945 and post-1975 periods. The results
reveal that the statistical significance of the variable showing the interaction
between credit growth and current account balance is higher for the post-1975
period. There is also a statistically significant and higher correlation between
credit growth and current account deficit for the post-1975 period. This result
suggests that rapid loan growth after 1975 is synchronized with widening current
account imbalances. These findings indicate that credit expansion is an important
variable that should be monitored to prevent a financial crisis.
There
is also a strong correlation between credit growth and current account
deficit in Turkey (Chart 1). The current account imbalance and the gradual
increase in the share of portfolio investments and short-term capital inflows in
financing the imbalance increase the fragility of the economy against sudden
changes in global risk appetite, and raise concerns about macroeconomic and
financial stability (Chart 2).
See IMF (2004).
Countries analyzed are the United States, Canada, Australia, France, Germany, Italy, Japan, the Netherlands, Denmark,
Norway, Spain, Sweden, Switzerland and the United Kingdom.
3
4
68
Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 1.
Credit Growth and Current Account Deficit
Chart 2
Main Sources of Funding for Current Account
Deficit
(12-Month Cumulative, Billion USD)
FDI and Long-Term
Portfolio and Short-Term*
Current Account Deficit
Current Account/GDP*
9
Changes in the Credit Stock/GDP (right axis)**
14
70
12
60
8
7
10
6
50
40
5
8
30
4
6
20
10
4
2
1
* 12-month cumulative current account deficit to GDP ratio.
** Yearly change in credit stock to GDP ratio.
Source: BRSA, CBRT.
1210
0610
1209
0609
1208
0608
1207
0607
1206
0606
1205
0605
1204
0604
1203
0
0
2
-10
0
-20
1206
0307
0607
0907
1207
0308
0608
0908
1208
0309
0609
0909
1209
0310
0610
0910
1210
3
* Short-term capital movements are the sum of net banking and
real sector loans and bank deposits.
Source: CBRT.
The risks associated with the deteriorated current account balance and the rapid
credit expansion led to a search for alternative policies. In this context, limiting the
growth rate of loans to reduce the risks to financial stability has been adopted as
an intermediate target. Without sacrificing its primary objective of maintaining
price stability, the CBRT adopted a new policy strategy combining various
complementary policy tools to contain macro financial risks. In this regard,
alongside policy rates, required reserves and the interest rate corridor (the
difference between O/N lending and borrowing rates) are decided to be used as
active monetary policy instruments.
References
Borio, C. and P. Lowe, (2002), "Asset Prices, Financial and Monetary Stability:
Exploring the Nexus ", BIS Working Paper No. 114
Hilbers, P., Otker, I., Pazarbaşıoğlu, C., and G. Johnsen, (2005), "Assessing and
managing Rapid Credit Growth and the Role of Supervisory and
Prudential Policies", IMF Working Paper No. 151
International Monetary Fund, (2004), "Are credit booms in Emerging Markets a
Concern?" World Economic Outlook, April 2004, Chapter IV.
Jorda, O., Taylor, M. And M. Schularick, (2010), "Financial Crises, Credit booms and
External Imbalances: 140 Years of Lessons ", NBER Working Paper No.
16567.
Inflation Report 2011-II
69
Central Bank of the Republic of Turkey
Box
5.2
Noting
Effects of Decisions on Required Reserves
that the rapid divergence between domestic and external demand
coupled with short-term capital inflows has added to the risks to financial stability
since mid-2010, the CBRT adopted a monetary policy strategy combining
alternative policy instruments to reduce the risks associated with the new
economic environment. In this regard, putting a cap on short-term capital inflows
and domestic credit expansion to contain macro financial risks is adopted as an
intermediate target. Under the new monetary policy strategy, the CBRT, without
sacrificing price stability, diversified its set of instruments to maintain financial
stability. Thus, 1-week repo rate, the reference policy rate, the O/N interest rate
corridor and required reserve ratios have been used jointly as policy instruments.
This Box focuses on the effects of the decisions on required reserves.
The preparations for the transition to a new policy strategy began with the exit
strategy in April 2010. In this context, the anti-crisis liquidity measures were
gradually withdrawn, while required reserve ratios were gradually brought back to
pre-crisis levels until end-2010. In line with the goal of reducing macro financial
risks, required reserve ratios have been gradually increased to control the TL
liquidity and the credit supply in the market since November 2010. To this end,
interest payments on required reserves were ended and the coverage of liabilities
subject to required reserves was widened. Moreover, the higher required reserve
ratios for shorter maturities are aimed to extend the average maturity of liabilities
and to enhance financial stability. 5 Upon these decisions, the weighted average
TL required reserve ratios was raised to 13.5 percent as of April 2011 (Table 7.1.1).
In this context, following the latest decision effective May 13, 2011, the required
reserve adjustments will have withdrawn about TL 40 billion from the market since
October 2010.
5 See Başçı, E. and H. Kara, (2011), “Finansal İstikrar ve Para Politikası”, İktisat İsletme ve Finans, 26(302), 9-25 (in Turkish) for an
extensive study on the purpose and the implementation of the new policy mix.
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Inflation Report 2011-II
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In the inflation targeting regime, the impact of required reserves on the macro
economy is transmitted through the cost and liquidity channels. The cost channel
basically operates through the impact of the changes in central bank's reserve
requirements on the spread between banks' loan and deposit rates, while the
liquidity channel operates through the impact of the changes in required reserves
on the lending behavior, changing banks' need for central bank's short-term
funding. 6
The
new monetary policy approach has lagged effects on the rapid credit
expansion, a primary risk factor for financial stability. Following the decisions on
required reserves over November 2010-January 2011, the acceleration in
consumer loans that started in the last quarter of 2010 stopped in the first quarter
of 2011, but the annual growth rate of loans remained high (Chart 1). During this
incorporated
most of the additional costs
Chart 1.
Annual Growth Rates of Loans
imposed
(Annual Percent Change)
reserve decisions on loans was
0411
0111
1010
-20
0710
the initial impact of required
0
-10
0410
required reserves. Therefore,
10
0110
increased
20
1009
from
30
0109
funds to close the liquidity gap
40
1008
banks relied heavily on CBRT
50
0708
raising loan rates. Meanwhile,
60
0408
margins and refrained from
70
0108
deposit rates, lowered profit
resulting
TL Business Loans
FX Business Loans (Adjusted for the Exchange Rate)
Consumer Loans
into
1007
ratios
in
0707
reserve
hike
0407
the
0107
required
by
0709
banks
0409
period,
Source: CBRT.
relatively limited. This is largely attributed to the intense competition in the banking
sector and the growing optimism about the macroeconomic outlook. Moreover,
prolonged structural changes in banks' portfolios have also limited the short-term
impact of required reserve adjustments.
6
See Alper, K. and S. T. Tiryaki (2010), "The Role of Required Reserves in Monetary Policy", CBRT Economic Notes No. 11/08.
Inflation Report 2011-II
71
Central Bank of the Republic of Turkey
The
decisions on hiking required reserve ratios in January 2011 and onwards
received different responses from banks and the effects of the liquidity channel
have become more pronounced. After required reserve ratios were increased by
200 basis points on January 24, 2011 across maturities with larger deposits, deposit
rates began to move upward, contrary to previous decisions (Chart 2). In
addition, after this decision, banks started to sell out GDBS to meet a substantial
portion of the credit expansion (Chart 3). These developments indicate that banks
tend to maintain their balance sheet liquidity ratios and change the structure of
their balance sheets on the assets and liabilities side. However, due to the fact
that total deposits do not show rapid changes in the short term and the funds in
securities portfolios are limited, these resources seem unlikely to provide banks
with sufficient flexibility to sustain the rapid credit growth. In this context, the
impact of the decisions on loan growth is expected to be more pronounced by
the second quarter of 2011.
Chart 2.
Loan and Deposit Rates
Chart 3.
Bank ing Sector TL Securities Portfolio
(Percent, 4-Week Average)
(Billion TL)
TL Business Loan Rate
Weighted Average Deposit Rate
230
9.50
226
9.00
8.50
222
8.00
218
7.50
214
7.00
Source: CBRT.
0411
0311
0211
0111
1210
1110
1010
0910
0810
0710
210
0610
0311
0311
0211
0111
1210
1210
1110
1010
1010
0910
0810
0810
0710
0610
6.50
Source: BRSA, CBRT.
Another objective of the CBRT for enhancing financial stability is to extend the
maturity of liabilities in the banking system. In this regard, the distribution of
required reserve ratios, with higher ratios for shorter maturities, is aimed to extend
the average maturity of liabilities and to enhance financial stability. Following the
relevant decisions, deposit rates saw an upward-sloping yield curve, while the
average maturity of deposits was gradually extended (Chart 5.1.9).
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
In sum, the recent decisions on required reserves has started to change banks'
behavior, which is reflected through banking sector balance sheets. Changes in
the structure of balance sheets indicate that banks tend to reduce their
dependence on short-term funding. This finding is supported by the increases in
deposit and loan rates.
Inflation Report 2011-II
73
Central Bank of the Republic of Turkey
74
Inflation Report 2011-II
Central Bank of the Republic of Turkey
6. Public Finance
The
faster-than-expected
economic
recovery
and
falling
interest
expenditures helped enhance Turkey's fiscal outlook (Chart 6.1). Furthermore,
the budget performance continues to improve as of the first quarter of 2011.
The increased tax revenues amid robust domestic demand and the decline in
interest expenditures were the major drivers of the improved budget balances
in this period. In addition, the relative slowdown in the growth of primary
expenditures also contributed to the improvement in budget balance.
Chart 6.1.
Central Government Budget Balance and EU-Defined Public Debt Stock
(Percent of GDP)
40.6
36.8
2013*
40
38.8
6
2012*
60
2.8
9
2.4
80
2011*
Public Debt Stock
Maastricht Criterion: 60%
Budget Deficit
12
1.6
3
20
2010
2009
2008
2007
2006
2005
2004
2003
2002
2013*
2012*
2010
2011*
2009
2008
2007
2006
2005
2004
2003
2002
2001
2001
0
0
* MTP (2011-2013) targets.
Source: Ministry of Finance.
Fiscal targets available in the October 2010 MTP for 2011-2013 hint at a
gradual decline in the ratio of public expenditures to GDP. Therefore, the
medium-term forecasts in the last chapter of this Report are based on an
outlook where fiscal policy would be gradually tightened and public
expenditures would make an increasingly smaller contribution to domestic
demand. Hence, the public sector is expected to exert no significant pressure
on inflation in the medium term. However, in order to maintain fiscal discipline
and ensure that Turkey continues to have more positive readings than other
emerging economies, strengthening the fiscal structure by implementing the
institutional and structural reforms envisaged in the MTP remains critical.
6.1. Budget Developments
The central government budget produced a deficit of TL 4.1 billion in the
first quarter of 2011, while the primary balance delivered a surplus of TL 9.8 billion
(Table 6.1.1). Higher tax revenues fueled by economic recovery and falling
Inflation Report 2011-II
75
Central Bank of the Republic of Turkey
interest expenditures were the main drivers of the year-on-year improvement in
the budget balance. In addition, the relative slowdown in the growth of primary
expenditures helped bring the budget deficit down.
Table 6.1.1.
Central Government Budget Aggregates
(Billion TL)
JanuaryMarch 2010
JanuaryMarch 2011
68.4
15.0
53.4
57.0
47.9
6.8
-11.3
3.7
Central Government Expenditures
Interest Expenditures
Primary Expenditures
Central Government Revenues
I. Tax Revenues
II. Non-Tax Revenues
Budget Balance
Primary Balance
Rate of Increase
(Percent)
Actual/Target
(Percent)
72.9
6.6
23.3
14.0
58.9
68.7
57.5
8.7
-4.1
-6.9
10.3
20.5
19.9
27.7
-
29.4
22.2
24.6
24.7
22.1
-
9.8
-
70.5
Source: Ministry of Finance.
Having improved since the first quarter of 2010, central government
budget balance and primary budget balance to GDP ratios deteriorated
slightly amid the rapid increase in primary expenditures during the fourth
quarter. On the other hand, the first quarter’s favorable budget outturn helped
improve both ratios (Chart 6.1.1). The steady upward trend in the budget
revenues to GDP ratio since the fourth quarter of 2009, driven by higher tax
revenues, resumed in the first quarter of 2011 after the pause in the last quarter
of 2010. Meanwhile, notwithstanding the slight slowdown during the first three
quarters of 2010, the primary expenditures to GDP ratio increased in the last
quarter before falling back in the first quarter of 2011 (Chart 6.1.1).
Chart 6.1.1.
Central Government Budget
(Annualized, Percent of GDP)
Budget Balance
Budget Balance
Budget Revenues and Primary Expenditures
Primary Balance
Budget Revenues
8
24
6
23
Primary Expenditures
22
4
1.3
2
21
20
0
19
-2
18
-4
-2.8
-6
17
16
15
-8
14
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
2009
2010
2011
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
2009
2010
2011
* Estimate.
Source: Ministry of Finance.
Central government primary expenditures increased slightly by 10.3
percent year-on-year in the first quarter of 2011. The slight increase in primary
expenditures was mainly due to the 6.6 percent increase in current transfers, the
76
Inflation Report 2011-II
Central Bank of the Republic of Turkey
major component of primary expenditures. Personnel expenditures, another
major component of primary expenditures, were up 15.7 percent, while
purchase of goods and services decreased by 3.3 percent. Meanwhile, capital
expenditures increased by about 48.2 percent, implying that public investments
made a positive contribution to GDP growth in the first quarter of 2011
(Table 6.1.2).
Table 6.1.2.
Central Government Primary Expenditures
(Billion TL)
Primary Expenditures
1. Personnel Expenditures
2. Government Premiums to SSA
3. Purchase of Goods and Services
a) Defense and Security
b) Health Expenditures
4. Current Transfers
a) Duty Losses
b) Health, Pension and Social Benefits
c) Agricultural Support
d) Shares Reserved from Revenues
5. Capital Expenditures
6. Capital Transfers
JanuaryMarch 2010
53.4
16.2
2.8
4.2
1.1
1.1
27.7
1.0
14.8
3.2
6.6
1.0
0.3
JanuaryMarch 2011
58.9
18.8
3.3
4.8
1.2
1.1
29.6
0.4
15.7
2.8
7.6
1.5
0.3
Rate of
Increase
(Percent)
10.3
15.7
20.1
13.6
15.6
-2.8
6.6
-61.6
6.4
-11.3
15.0
48.2
-5.6
Actual/Target
(Percent)
22.2
26.0
26.0
15.9
12.2
22.1
25.5
7.4
25.2
46.8
26.4
6.9
6.2
Source: Ministry of Finance.
General budget revenues increased by 20.9 percent year-on-year in the
first quarter of 2011. Tax revenues were up 19.9 percent and non-tax revenues
increased by 27.7 percent on soaring capital revenues (Table 6.1.3). In
particular, the substantial increase in consumption based tax revenues such as
domestic VAT and VAT on imports indicates that consumption demand remains
strong. Additionally, the record high temporary corporate tax payments also
contributed to the rapid increase in tax revenues. SCT revenues increased at a
relatively slower pace owing to lower SCT payments on tobacco products and
the limited increase in SCT on oil and natural gas products.
Table 6.1.3.
Central Government General Budget Revenues
(Billion TL)
General Budget Revenues
I-Tax Revenues
Income Tax
Corporate Tax
Domestic VAT
SCT
VAT on Imports
II-Non-Tax Revenues
Enterprise and Property Revenues
Interests, Shares and Fines
Capital Revenues
JanuaryMarch 2010
JanuaryMarch 2011
Rate of Increase
(Percent)
Actual/Target
(Pecent)
54.7
47.9
9.6
4.6
5.8
11.7
7.7
6.8
1.7
4.6
0.1
66.2
57.5
10.4
6.6
7.3
13.3
10.3
8.7
2.6
4.3
1.3
20.9
19.9
8.6
41.7
26.3
14.0
34.1
27.7
57.1
-6.8
-
24.4
24.7
22.0
28.3
27.4
21.8
25.1
22.1
36.0
20.6
13.0
Source: Ministry of Finance.
Inflation Report 2011-II
77
Central Bank of the Republic of Turkey
The contraction in real tax revenues since the third quarter of 2008 has
been replaced by a significant growth as of the fourth quarter of 2009 with the
recovery of private consumption demand. After a robust first quarter, the
annual rate of increase in real tax revenues slowed down slightly on waning
base effects in the consecutive two quarters before rising again in the last
quarter of 2010 (Chart 6.1.2). Real tax revenues increased by 14.9 percent yearon-year in the first quarter of 2011. SCT and domestic VAT revenues, major
components of tax revenues, increased by 9.2 and 20.9 percent year-on-year,
respectively, in real terms (Chart 6.1.2).
Chart 6.1.2.
Real Tax Revenues
(Percent of GDP)
Real Tax Revenues
Real VAT and SCT Revenues
(Annual Percent Change)
(Annual Percent Change)
Real Domestic VAT Revenues
20
14.9
15
Real SCT Revenues
40
30
10
20
5
10
0
0
-5
-10
-10
-20
-15
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2007
2008
2009
2010
2011
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2007
2008
2009
2010
2011
Source: Ministry of Finance.
The program-defined consolidated public sector and the central
government primary balance have improved throughout the last quarter of
2009 and the first three quarters of 2010, but deteriorated significantly in the last
quarter of 2010 due to the rapid increase in primary expenditures. With the
favorable fiscal performance in the first quarter of 2011, the program-defined
primary balance started to improve again (Chart 6.1.3). Meanwhile, primary
balances of extrabudgetary funds and the Unemployment Insurance Fund
improved year-on-year during the last quarter of 2010, whereas primary
balances of SEE and social security institutions deteriorated (Chart 6.1.3).
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 6.1.3.
Primary Balance
Program-Defined Primary Balance
Consolidated Public Sector Primary Balance: Selected Items
(Annualized, Billion TL)
(Annualized, Billion TL)
Central Government Primary Surplus
Consolidated Public Sector Primary Surplus
40
2008Q4
2009Q4
2010Q4
7
6
30
5
20
3.4
4
10
4.9
3
2
0
0.8
1
-1.1
-10
-1
0107
0407
0707
1007
0108
0408
0708
1008
0109
0409
0709
1009
0110
0410
0710
1010
0111
-20
0.3
0
-0.6
-2
Extra Budgetary
Funds
SSE
Social Security Unemployment
Institutions
Insurance Fund
Source: Treasury.
6.2. Developments in the Debt Stock
The fiscal and debt management policies consistent with the prudent
monetary policy stance in 2010 as well as the faster-than-expected economic
recovery since the last quarter of 2009 helped improve fiscal balances, thus
public debt stock indicators. 2010 was marked by a decline in public debt
ratios, a significant fall in the real cost of borrowing, an extended average
maturity of debt, a decreased share of interest rate and exchange ratesensitive debt in overall debt and a reduced domestic debt rollover ratio. This
favorable outlook also continued into the first quarter of 2011.
The central government debt stock increased by 2.6 percent from end2010 to TL 485.9 billion at end-March 2011. Changes in net domestic debt and
net external debt accounted for TL 7.1 billion and TL 3.0 billion, respectively, of
the increase in central government debt. Meanwhile, with the depreciation of
the USD against the euro, parity changes brought central government debt up
by TL 2.4 billion (Chart 6.2.1).
Public debt ratios, which increased in 2009 on low primary surplus
performance and economic contraction, declined in 2010 as the above factors
have reversed. The ratios of total net public debt stock and EU-defined general
government nominal debt stock to GDP declined by 3.8 and 3.9 percentage
points from end-2009 to 28.7 and 41.6 percent, respectively (Chart 6.2.1).
Inflation Report 2011-II
79
Central Bank of the Republic of Turkey
Chart 6.2.1.
Public Debt Stock Indicators
Public Debt Stock Indicators
Analysis of the Changes in Central Government Debt Stock
(Billion TL)
Total Public Net Debt Stock (Percent of GDP)
80
70
60
50
40
30
20
10
0
-10
-20
-30
EU-Defined Central Government Nominal Debt Stock (Percent
of GDP)
Central Government Total Debt Stock (Billion TL, right axis)
600
70
485.9 500
60
400
41.6
50
300
28.7
40
30
200
20
100
10
0
0
2003
2005
2007
2009
2006
2007
2008
2009
2010
2011/3*
Net Domestic
Borrowing
6.7
8.9
13.9
54.8
23.3
7.1
Net External
Borrowing**
-0.5
-2.6
4.0
5.9
9.0
3.0
Exchange Rate
Effect***
6.4
-21.2
29.9
-0.1
2.6
0.2
Parity Effect****
3.2
3.4
-1.0
0.6
-3.1
2.4
2011/03
* Changes compared to end-2010.
** Changes in net debt denote changes adjusted for exchange rate and parity effect.
*** Changes from fluctuations in TL/USD.
**** Changes from fluctuations in USD/EUR and USD/SDR.
Source: Treasury, CBRT.
The Treasury’s financing program for 2011 has been formulated based on
an approach to limit the liquidity, interest and foreign exchange sensitivity of the
debt stock. In this regard, the increase in the share of fixed-rate instruments has
continued into March 2011 (Chart 6.2.2).
Chart 6.2.2.
Structure of the Central Government Debt Stock
Composition of the Central Government Debt Stock
(Percent)
FX-Denominated/FX-Indexed
Floating-Rate
Vulnerability Indicators of the Central Government Debt
Stock
(Percent)
Public Deposits/Average Monthly Debt Service (right
axis)
Interest Rate-Sensitive Debt Stock/Total Debt Stock*
Fixed-Rate
26.6
90
80
27.1
100
37.4
60
50
36.2
70
Exchange Rate-Sensitive Debt Stock/Total Debt Stock**
70
300
60
250
50
200
40
150
40
30
20
36.7
36.0
30
10
100
20
50
10
0
0
2001
2003
2005
2007
2009
2011/03
0
2001
2003
2005
2007
2009
2011/03
* Debt stock sensitive to interest rate includes discounted securities with a maturity less than 1-year and government securities with floating rates.
** Debt stock sensitive to exchange rate includes external debt stock, FX-denominated and FX-indexed domestic debt stock.
Source: Treasury, CBRT.
The financing strategy implemented to reduce liquidity risk also continues
in 2011. The ratio of public deposits to average monthly debt service has been
121.8 percent as of the first quarter of 2011 (Chart 6.2.2). Amid the significantly
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increased average maturity of domestic cash borrowing, term-to-maturity of
total domestic debt stock increased to 34.2 months in March 2011 (Chart 6.2.3).
Moreover, bond issues have yielded a long-term external debt of USD 3.2 billion
in the first four months of 2011, with an average maturity slightly down to 16.3
years from 2010 (Chart 6.2.3).
Chart 6.2.3.
Maturity of Borrowing from Domestic and External Markets
Borrowing by Bond Issue
Average Maturity of Domestic Cash Borrowing and Termto-Maturity of the Domestic Debt Stock
(Month)
External Borrowing (right axis,billion USD)
Average Maturity of External Borrowing (year)
Maximum Maturity of External Borrowing (year)
Average Maturity of Domestic Debt Stock
Average Maturity of Domestic Cash Borrowing
60
52.8
50
40
35
7
30
6
25
5
20
4
15
3
34.2
30
20
2011/04
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2010
2011/03
2009
2008
2007
2006
2005
0
2004
0
2003
0
2002
1
2001
2
5
2000
10
10
Source: Treasury, CBRT.
Having fallen rapidly since early 2009, the monthly average real interest
rates at discount Treasury bill auctions remain low despite the slight increases in
February, March and April 2011 (Chart 6.2.4). The substantially extended
average maturity and the low cost of domestic borrowing support the
favorable outlook for public debt sustainability.
Chart 6.2.4.
Domestic Borrowing
Total Domestic Debt Rollover Ratio
(Percent)
Average Maturity of Borrowing and Interest Rates at
Discount Auctions
110
103.5
105
100
800
Maturity (day)
Average Compounded Interest Rate (right axis)
Real Interest Rate (right axis)
70
700
60
600
95
91.4
90
50
500
40
400
30
300
80
200
75
100
70
0
2003
2005
2007
2009
2011/02
20
10
0
0212
0306
0312
0406
0412
0506
0512
0606
0612
0706
0712
0806
0812
0906
0912
1006
1012
89.3
85
Source: Treasury, CBRT.
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Domestic debt rollover ratio was 91.4 percent for January-February 2011
and is expected to decline to 85.7 percent in the first half of 2011 as envisaged
by the Treasury's domestic borrowing strategy for April-June 2011 (Chart 6.2.4).
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7. Medium-Term Projections
This Chapter gives information about the CBRT's recent monetary policy
strategy and the related policy decisions. Furthermore, it summarizes the
underlying forecast assumptions and presents the medium-term inflation and
output gap estimates as well as the monetary policy outlook over the
upcoming three-year horizon.
7.1. Recent Monetary Policy Decisions
The CBRT, with the main objective of maintaining price stability in addition
to the duty to observe financial stability, adopted a policy mix in November
2010 and continued to implement the policy mix of low policy rate, wide
interest rate corridor and high reserve requirement ratios in the first quarter of
2011. Accordingly, 1-week repo rate, the policy rate, was reduced to 6.25
percent in January with a 25 basis point decline and the weighted average of
the required reserve ratios was raised in order to control rapid credit growth. The
rapid surge in oil and commodity prices in the subsequent period increased the
upside risks to inflation, necessitating an additional tightening in order to limit the
second round effects. Assessing that required reserve ratios rather than policy
rates would be more effective for containing macro financial risks driven by the
divergence between domestic and external demand, the additional tightening
was implemented through a substantial increase in the weighted average of
the required reserve ratios. Accordingly, the TL required reserve ratios were
raised significantly for demand deposits, short-term time deposits/participation
funds and other liabilities.
In order to balance domestic and external demand, and thus limit macro
financial risks, TL and FX required reserve ratios were raised slightly on April 21,
2011 by consequently driving the weighted average of the TL required reserve
ratios up to 13.5 percent (Table 7.1.1). With the last decision to be effective as of
May 13, 2011 in addition to prior adjustments to required reserve ratios since
October 2010, a total of TL 40 billion will have been withdrawn from the market.
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Table 7.1.1.
Decisions TL Required Reserve Ratios
(Percent)
Decision Date
Demand
Deposits
<1month
<3month
<6month
<1year
≥1year
Cumulative
Weighted
Average
Other*,**
Oct. 16, 2009
5
5
5
5
5
5
5
5
5
Sept. 23, 2010
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.5
Nov. 12, 2010
6
6
6
6
6
6
6
6
6
Dec. 17, 2010
8
8
7
7
6
5
5
8
7.4
12
10
9
7
6
5
5
9
9.4
Mar. 23, 2011
Jan. 24, 2011
15
15
13
9
6
5
5
13
13.2
Apr. 21, 2011
16
16
13
9
6
5
5
13
13.5
* Excluding deposits and participation funds.
**As of December 17, 2010, all repo transactions excluding transactions with the CBRT and Interbank transactions have been subject to reserve
requirement.
Source: CBRT.
Meanwhile, as part of the measures to contain macro financial risks, FX
required reserve ratios were differentiated by maturity and raised slightly for
short-term deposits on April 21, 2011 (Table 7.1.2). A total of USD 1.4 billion will be
withdrawn from the market with this decision to be effective as of May 13, 2011.
Table 7.1.2
Decisions on FX Required Reserve Ratios
(Percent)
Decision Date
Demand
Deposits
<1year
≥1year
Cumulative
<1year*
<3year*
≥3year*
Weighted Average
Sept. 23, 2010
11
11
11
11
11
11
11
11
Apr. 21, 2011
12
12
11
11
12
11,5
11
12
* Other liabilities.
Source: CBRT.
In sum, the CBRT continued to implement the policy mix of low policy rate,
wide interest rate corridor and high required reserve ratios in order to limit risks to
price stability as well as financial stability. Furthermore, the CBRT stated that the
effects of the tightening will be closely monitored, and additional measures
would be adopted if deemed necessary.
7.2. Current State of the Economy, Short-Term Outlook and
Assumptions
National accounts data for the fourth quarter of 2010 were consistent with
the outlook presented in the October Inflation Report. The main driver of growth
in the fourth quarter was domestic demand with private demand displaying a
faster-than-expected increase. Exports increased significantly, whereas imports
grew sharply on robust domestic demand, and hence, net exports made a
higher negative contribution to growth quarter-on-quarter. Domestic demand
remained strong in the first quarter of 2011, while external demand continued to
follow a relatively weak pace. Thus, the divergence between the post-crisis
recovery of domestic and external demand became even more pronounced.
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Meanwhile, employment conditions continued to improve, yet unemployment
remained elevated above pre-crisis levels.
Annual CPI inflation declined to the historic low of 3.99 percent in the first
quarter of 2011. The fall in inflation was mainly attributed to the waning base
effects of the tax adjustments in January 2010 in addition to the favorable
developments in unprocessed food prices than envisaged. Core inflation
indicators, albeit rising year-on-year, remained on track with medium-term
targets.
Food prices remained lower than the envisaged path in the January
Inflation Report, mainly owing to the correction in unprocessed food prices.
While processed food prices increased amid increases in international food
prices, fresh fruit and vegetable prices as well as meat prices continued to fall,
driving food inflation down.
The sharp rises in international commodity prices and the depreciation of
the Turkish lira had a major impact on the prices of core goods. In seasonally
adjusted terms, prices of core goods increased sharply. Producer prices also
rose sharply as a result of heightened unit costs amid developments in
commodity prices and the exchange rate.
Table 7.2.1.
Revisions to 2011Assumptions
Food Price Inflation
(Annual Percent Change)
Processed Food
Unprocessed Food
Import Prices
(Annual Percent Change)
Oil Prices
(Average, USD)
Export-Weighted Global Production Index
(Annual Percent Change)
January 2011
April 2011
7.5
7.5
6.0
9.0
7.0
8.0
10.9
16.2
95
115
2.60
2.60
Despite the lower-than-expected decline in unprocessed food prices,
given the high volatility in unprocessed food inflation and the surge in
agricultural commodity prices, our assumption for food inflation was maintained
at 7.5 percent. International food prices affect domestic prices mainly through
processed prices. Therefore, the composition of food inflation has been varied.
Accordingly, unprocessed food inflation has been revised down to 8 percent
while processed food inflation has been raised to 7 percent (Table 7.2.1).
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In the January Inflation Report, oil prices were assumed to be 95 USD/bbl
for 2011 and onwards. Moreover, in reference to futures prices for commodities,
import prices were assumed to increase by an average 10.9 percent year-onyear in 2011. However, commodity prices have displayed a higher-thanexpected rise in the first quarter of 2011. In particular, production cuts and
mounting uncertainty due to political tension in the MENA region led to sharp
rises in oil prices. Accordingly, in the first quarter of 2011, oil prices posted a
higher increase than envisaged in the January Inflation Report (Chart 7.2.1). In
this context, in view of the futures prices as of the first half of the April, the oil
price assumption for 2011 and onwards is revised to 115 USD/bbl. Furthermore,
again considering the futures prices, import prices are assumed to increase by
about 16.2 percent year-on-year in 2011 (Chart 7.2.1). These changes in
assumptions led to an upward revision by 50 basis points in inflation forecasts for
2011.
Chart 7.2.1.
Revisions to Oil and Import Price Assumptions
Oil Prices(USD/bbl)
January 2011
Import Prices (2003=100)
April 2011
January 2011
April 2011
200
135
125
190
115
180
105
95
170
85
160
75
65
150
55
140
Source: Bloomberg, CBRT.
0713
0113
0712
0112
0711
0111
0710
0110
0709
0109
0708
0108
130
0707
0713
0113
0712
0112
0711
0111
0710
0110
0709
0109
0708
0108
0707
0107
35
0107
45
Source: TurkStat, CBRT.
The raise in tariffs on fabrics and apparels had a major impact on inflation
forecast for 2011. The decision by the Council of Ministers on February 4, 2011 to
raise tariffs on fabrics and apparels at various rates across country groups will be
effective in the second half of the year. Given the high share of fabrics and
apparels in the CPI basket, these measures are expected to drive 2011 yearend inflation up by 50 basis points (Box 3.1).
External demand remains weak against the strong pace of domestic
demand. Leading indicators for the euro area indicate an ongoing mild
recovery in the first quarter of 2011. However, the uncertainties regarding the
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restructuring of debt across some euro are countries with sovereign debt
problems are likely to pose risks to euro are growth and global risk appetite. The
favorable growth and employment performance in the U.S. economy since the
last quarter of 2010 as well the recently announced leading indicators signal a
stronger economic growth. However, export-weighted global production index
continued to hover below pre-crisis levels in the last quarter of 2010 due to weak
pace of growth in the euro area. Assuming that the recovery in Turkey’s major
export destinations is maintained, export-weighted global production index is
expected to reach pre-crisis levels in the second quarter of 2011.
In sum, the first quarter forecasts envisage no significant changes for the
global economic outlook. Indeed, export-weighted global economic activity
index constructed by the CBRT remains largely unchanged (Chart 7.2.2). Hence,
our medium-term forecasts are based on the assumption that external demand
will continue to recover gradually and slowly.
Chart 7.2.2.
Export-Weighted Global Economic Activity Index*
January 2011
107
April 2011
106
105
104
103
102
101
100
99
1
2
3
4
2009
1
2
3
2010
4
1
2
3
4
2011
* For methodology, see Inflation Report 2010-II, Box 2.1 “Foreign Demand Index for Turkey”.
Source: Bloomberg, Consensus Forecasts, CBRT.
Despite the weak pace of external demand, given the stronger-thanexpected growth in the domestic demand, our forecasts are based on an
outlook where aggregate demand conditions would provide no more support
to disinflation. Accordingly, our output gap forecasts, the starting point for our
medium-term forecasts, are revised upward. However, taking into account the
stronger-than-expected effects of the monetary tightening implemented in the
first quarter, the output gap is expected to close at a slower pace compared to
the previous period (Chart 7.3.2).
The measures adopted by the CBRT since November are expected to be
materialized on loans and domestic demand as of the second quarter of the
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year. Indeed, the recently changing banking sector balance sheet structure as
well as the soaring deposit and loan rates support this view.
In building medium-term inflation forecasts within the inflation targeting
framework, the CBRT uses not only policy rates, but also the required reserve
ratios and other liquidity management tools. Our medium-term forecasts are
based on an outlook where the net impact of the policy mix on monetary
conditions would be restrictive.
Lastly, given the MTP targets for 2011-2013, a limited fiscal tightening is
assumed for the upcoming period. In this regard, our medium-term forecasts
are based on outlook where public expenditures are assumed to make a
gradually declining contribution to domestic demand. In other words, the
public sector is unlikely to put inflationary pressure on aggregate demand.
Moreover, tax adjustments are expected to be consistent with inflation targets
and automatic pricing mechanisms.
7.3. Medium-Term Outlook
Against this background and assuming that credit growth rate declines to
20-25 percent with a limited additional tightening in the second half of 2011,
inflation will be, with 70 percent probability, between 5.6 and 8.2 percent with a
mid-point of 6.9 percent at the end of 2011, and between 3.4 and 7.0 percent
with a mid-point of 5.2 percent at the end of 2012. Inflation is expected to
stabilize around 5 percent in the medium term (Chart 7.3.1).
Chart 7.3.1.
Inflation and Output Gap Forecasts
Forecast Range*
Year-End Inflation Targets
Uncertainty Band
Output Gap
12
10
Control
Horizon
8
Percent
6
4
2
0
-2
-4
0314
1213
0913
0613
0313
1212
0912
0612
0312
1211
0911
0611
0311
1210
0910
0610
0310
-6
* Shaded region indicates the 70 percent confidence interval for the forecast.
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The revised forecasts suggest that keeping inflation in line with targets
over the medium term requires a measured and vigorous credit growth. To this
end, a numerical range for the annual rate of credit growth is provided in
addition to inflation forecasts, in order to give a better perspective. It should be
emphasized that these numbers for the credit growth rates are not strict targets
of the CBRT. The nominal credit growth consistent with the medium-term
inflation target may vary from year to year depending on the course of inflation,
economic growth and the composition of aggregate demand.
Even though underlying inflation is expected to follow a stable trend in
line with the medium-term targets, base effects are likely to have a substantial
impact on inflation over the next three quarters. The correct understanding of
these effects will help public to better interpret inflation developments, and
thus, improve expectations management. Inflation is expected to be driven
mainly by base effects due to food prices in 2011, and thus, annual inflation is
expected to rise in the second quarter and decline in the third quarter. Lagged
effects of the surge in oil prices and tariff adjustments on fabrics and apparels
are expected to drive inflation up as of the second half of 2011. Starting from
mid-2012, inflation is expected to reach the medium-term target of 5 percent as
the base effects from tariff adjustments and higher commodity prices taper off
(Chart 7.3.2).
Comparison of January 2011 and April 2011 Forecasts
Chart 7.3.2.
Chart 7.3.3.
Inflation Forecast
Output Gap Forecast
1.0
10.0
0.0
9.0
April 2011
Actual
8.0
April 2011
-1.0
7.0
-2.0
6.0
January 2011
-3.0
5.0
January 2011
4.0
-4.0
3.0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2010
2011
Source: TurkStat, CBRT.
2012
2013
-5.0
1
2
3
2010
4
1
2
3
2011
4
1
2
3
2012
4
1
2
3
4
2013
Source: CBRT.
The unforeseen fluctuations in items that are beyond the monetary policy
control, such as unprocessed food and tobacco, are among major factors
causing deviations in inflation forecasts. Hence, the details of inflation forecasts,
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Central Bank of the Republic of Turkey
also including unprocessed food and tobacco, are publicly available. The
forecasts are based on the assumption that annual unprocessed food inflation
will be 8 percent, while the annual rate of increase in tobacco and alcoholic
beverages will remain in line with inflation targets. In this context, our inflation
forecasts excluding unprocessed food, tobacco and alcoholic beverages are
shown in Chart 7.3.4. Accordingly, inflation is expected to rise gradually until the
last quarter of 2011, return to a downward path thereafter and stabilize around
4.6 percent in the medium term (Chart 7.3.4).
Chart 7.3.4.
Inflation Forecast Excluding Unprocessed Food, Tobacco and Alcoholic
Beverages
Forecast Range*
12
Output Gap
10
8
6
Percent
4
2
0
-2
-4
0314
1213
0913
0613
0313
1212
0912
0612
0312
1211
0911
0611
0311
1210
0910
0610
0310
-6
* Shaded region indicates the 70 percent confidence interval for the forecast.
The main reason for inflation forecast to overshoot the end-2011 target of
5.5 percent is the sharp rise in import prices as mentioned above. The impact of
the cumulative increases in commodity prices since October 2010 on 2011
inflation is estimated to reach around 90 basis points (40 basis points of this
impact is reflected in the October Inflation Report forecasts while the remaining
50 basis point is reflected in the current Report). In addition, tariff adjustments
are assumed to bring 2011 inflation up by about 50 basis points. Therefore, the
reason for end-2011 forecast to exceed the inflation target can be attributed to
developments completely beyond the control of the monetary policy.
Accordingly, the statement following the April meeting of the MPC indicated
that the Committee would not respond to the first round effects of rising oil and
other commodity prices, but emphasized that second round effects will be
closely monitored and a deterioration in the pricing behavior will not be
tolerated.
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It should be emphasized that any new data or information may lead to a
change in the monetary policy stance. Therefore, assumptions regarding the
monetary policy outlook underlying the inflation forecast should not be
perceived as a commitment on behalf of the CBRT.
Comparison of CBRT Forecasts with Inflation Expectations
It is critical that economic agents, with the awareness of the temporary
factors, should focus on the medium-term inflation trend, and therefore, take
the inflation target as a benchmark for their pricing plans and contracts. In this
respect, to serve as a reference guide, CBRT’s current inflation forecasts should
be compared to inflation expectations of other economic agents. Survey of
Expectations
respondents’
end-2011
and
12-month
ahead
inflation
expectations are consistent with our baseline scenario forecasts. However, 24month inflation expectations are about 1.3 percentage points above our
revised inflation forecasts and the medium-term target (Table 7.3.1).
Table 7.3.1.
CBRT Inflation Forecasts and Expectations
CBRT Forecast
CBRT Survey of Expectations*
Inflation Target**
2011 Year-end
6.9
6.9
5.5
12-Month Ahead
6.6
6.8
5.3
24-Month Ahead
5.0
6.3
5.0
* April 2011, second survey period results.
** Calculated by linear interpolation of year-end inflation targets for 2011- 2013.
Source: CBRT.
7.4. Risks and Monetary Policy
The impact of the ongoing monetary tightening on credits and domestic
demand is expected to be more significant starting from the second quarter.
However, the extent and the timing of the impact may vary depending on the
developments beyond the control of the monetary policy. The CBRT will closely
monitor the lagged effects of the policy measures, and will take additional
measures if deemed necessary.
In assessing risk factors and the related monetary policy measures under
current circumstances, both price stability and financial stability are taken into
account. Therefore, risk factors are not only assessed with respect to their
impact on the level, but also on the composition of the aggregate demand
(external versus domestic demand). This is because the level of the aggregate
demand concerns price stability, whereas its composition relates directly to
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financial stability. Hence, risk factors regarding global economy are also
evaluated against this backdrop.
Downside risks regarding global economy remain critical, albeit having
been alleviated compared to the previous quarter. Problems in credit, real
estate and labor markets in many advanced economies are yet to be fully
solved. Moreover, uncertainties regarding debt sustainability issues and the
impact of a possible fiscal consolidation persist. Furthermore, rapid increases in
oil prices carry the potential to slow down global economic growth. All these
factors continue to feed downside risks regarding the pace of global growth.
The possibility of a prolonged period of slow global growth not only creates
downside risks regarding the external demand, but also keeps prospects for
strong capital flows vigorous. Should such a scenario materialize, a policy mix of
low policy rate, wide interest rate corridor and high reserve requirement ratios
may be implemented for a long period of time. Moreover, an outcome
whereby global economic problems intensify and contribute to a contraction
of domestic economic activity may require an easing in all policy instruments.
Although downside risks to global economy remain notable, upside risks
are also becoming more significant. Major uncertainties exist regarding the
lagged impacts of the exceptionally loose monetary policies implemented by
advanced economies on global economic activity and inflation. If the global
economy faces a faster-than-expected recovery in the upcoming period,
inflationary pressures may arise sooner than envisaged in the advanced
economies. Materialization of such a scenario would mean a tightening by
using policy rates as well as reserve requirements against higher global policy
rates and demand-pull inflationary pressure.
The outlook for oil and other commodity prices remains uncertain. Should
the increases in commodity prices persist and hamper the achievement of
medium-term inflation targets, an additional tightening may be implemented
sooner than envisaged by the baseline scenario. However, given that higher oil
prices will also deteriorate the current account balance, macro financial risks
will also be monitored through the policy reaction. Therefore, the content of the
policy mix may vary depending on the outlook for other factors such as external
demand, capital flows, and the credit growth.
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The CBRT will continue to monitor fiscal policy developments closely while
formulating monetary policy. Inflation forecasts in the baseline scenario assume
that the ratio of fiscal expenditures to GDP will evolve in line with the MTP
targets. A revision in the monetary policy stance may be considered, should the
fiscal stance deviate significantly from this framework, and consequently, have
an adverse effect on medium-term inflation outlook. Increasing public savings,
and hence, sustaining fiscal discipline is essential under current circumstances in
order to control risks fuelled by the widening current account deficit driven by
the divergence between domestic and external demand. Saving the
additional tax revenues provided by the stronger-than-expected economic
activity than envisaged by the MTP would not only ease risks regarding both
price stability and the financial stability, but also, enhance the efficiency of the
new policy mix.
Monetary policy in the period ahead will continue to focus on building
price stability on a permanent basis. To this end, the impact of the
macroprudential measures taken by CBRT and other institutions on the inflation
outlook will also be assessed carefully. Fulfilling the commitment to maintain
fiscal discipline and strengthening the structural reform agenda in the medium
term would contribute to the improvement of Turkey’s sovereign risk, and thus,
enhance macroeconomic stability and the price stability. Maintaining fiscal
discipline will also provide more room for monetary policy maneuver and
support the social welfare by keeping interest rates permanently at low levels. In
this respect, timely implementation of the structural reforms envisaged by the
MTP and the European Union accession process remains to be critical.
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Box
7.1
Designing and Communicating the New Monetary Policy
Approach by the CBRT1
The developments in the aftermath of the global
crisis displayed the fact that
implementing a monetary policy strategy solely based on price stability, yet
overlooking financial stability, hampers macroeconomic stability and price
stability in the medium and long term. Hence, the need for central banks to
observe financial stability from a macro perspective has been a widely accepted
view. As of mid-2010, the CBRT, with this awareness, has increasingly focused on
macro financial risks which erupted as a result of global imbalances, and
underscored the need to jointly use alternative instruments in order to alleviate
these risks.2 This Box assesses the new policy mix which has been designed and
adopted accordingly by the CBRT. First, the policy mix will be explained, and after
that, the issue of how and for which purposes these instruments are employed will
be tackled in addition to how these are communicated.3
The New Monetary Policy Approach and Its Implementation
The Turkish economy has displayed rapid recovery driven by domestic demand,
while external demand folowed a relatively weak course in the post-crisis period.
By mid-2010, the high growth rates in emerging economies, including Turkey, as
well as the expansionary monetary policies in the U.S. economy and the
European economies led to massive capital inflows to emerging economies. The
surge in capital provided easier access to credit, and thus, accelerated
consumption spending and also led to the appreciation of the Turkish lira, thereby
widening the imbalance between domestic and external demand. The rapid
deterioration of the current account and the growing share of short-term capital
inflows and portfolio investment in net capital inflows increased the economy’s
exposure to sudden changes in global risk appetite, thus, warranting an
alternative policy approach against mounting concerns over macroeconomic
and financial stability.
Adapted from Baçı, E. and H. Kara, (2011), “Finansal İstikrar ve Para Politikası”, İktisat İsletme ve Finans, 26(302), 9-25 (in
Turkish).
“Should the divergence in the growth rates between domestic and external demand continue in the forthcoming period, it
would be necessary to utilize other policy instruments such as reserve requirement ratios and liquidity management facilities
more effectively.” (July 2010 Inflation Report).
3 For an extended anaylsis of the the new policy mix designed by the CBRT, please refer to Kara, H. (2011). “Monetary Policy
under Global Imbalances: The Turkish Experience”, http://www.tcmb.gov.tr/yeni/iletisimgm/H.Kara_BIS.pdf.
1
2
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The CBRT, in order to contain the accumulated macro financial risks, adopted
the objective of slowing down credit growth and reducing short-term capital
inflows as intermediate targets. Accordingly, as of November 2010, the CBRT,
without sacrificing price stability, has launched the new policy mix of interest rate
corridor and required reserves ratios, in addition to policy rates, in order to
observe financial stability.
In order to limit credit growth, required reserve ratios have been used within the
new policy mix. In this context, the CBRT announced on its exit strategy in April
2010 that it would raise TL and FX required reserve ratios to pre-crisis levels, and
delivered gradual hikes. Furthermore, interest payments on TL required reserves
were terminated, the coverage of the liabilities subject to reserve requirement
was extended, and both TL and FX required reserve ratios were differentiated by
maturity, with higher ratios for shorter term maturities.4
Meanwhile,
with the objective to limit short-term capital inflows, the CBRT’s
intermediate target, 1-week repo rate, the policy rate, was reduced by 75 basis
points to 6.25 percent, and the O/N borrowing rate was reduced by 500 basis
points to 1.5 percent. Again for the same objective, interest rate corridor was
widened further, thus enabling an operational framework that allows to adjust
short-term volatility in money markets to economic conjuncture.
Communicating the Monetary Policy
Although it looks quite complicated at first sight, the newly adopted policy mix is
not different in spirit from the conventional inflation targeting framework. The main
difference from the previously implemented policy is observing financial stability in
addition to the main objective of price stability, and thus, using required reserves
and effective liquidity management as supportive tools, in addition to 1-week
repo rate, the policy rate.
4
See Tables 7.1.1 and 7.1.2.
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
Within the new policy mix framework, just like in the inflation targeting framework,
the deviation of the inflation forecast from the target is the main criterion with the
only exception that non-interest tools are also employed in order to observe
macro financial imbalances. Accordingly, the monetary policy stance depends
on short-term policy rates as well as monetary conditions such as market liquidity
and required reserves. The issue of which policy instrument will be used how
depends on factors affecting financial stability and price stability.
The increased emphasis of the CBRT on financial stability may lead to perceptions
that price stabiliy has been neglected. With this awareness, the CBRT established
an effective communication and underscored the overriding objective of price
stability through policy documents on all occasions. Moreover, the CBRT also
reminded
that
overlooking
macro
financial
imbalances
under
current
circumstances would hamper price stability in the future. In order to prevent
possible deterioration of expectations due to the change in the objective
function, the CBRT adopted a cautious stance regarding inflation, and
highlighted the need for monetary policy tightening.
The absence of a widely accepted theoretical foundation for the transmission
channel of unorthodox tools like interest rate corridor and required reserves may
also hamper communicating a monetary policy strategy where these tools are
actively used. In order to prevent expectations to deteriorate due to uncertainties
about transmission mechanism, the CBRT frequently highlighted through policy
documents that the impacts of these meaures would be carefully monitored, and
additional measures would be adopted if deemed necessary.5
Within
the inflation targeting framework, the CBRT publicly shares its inflation
forecasts through Inflation Reports and announces the qualitative course of the
future policy rates. By the adoption of the new policy strategy, the CBRT, instead
of announcing the future course of policy rates, communicated the monetary
policy strategy through policy mix and “monetary tightening”. Accordingly, with a
view to maintain the flexibility regarding the future course of instruments
composing the policy mix, the CBRT, rather than providing the direction for each
individual instrument, announces its forecasts on the net impact of the policy mix.
In doing so, the CBRT also enhances the effectiveness of the required reserves
through interest rate risk channel by reducing the forecastability of short-term
policy rates, one of the components of the policy mix.
5Required
reserve ratios were raised substantially in March 2011 in order to reinforce financial stability as well as to contain the
second round effects of the surge in oil and other commodity prices.
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The CBRT has followed an open communication strategy about the limits of the
monetary policy. The CBRT, thus stated that, reserve requirement is one of the
tools to limit credit growth and domestic demand, and supportive measures by
other relevant institutions are vital for containing macro financial risks. It was
further stated that direct measures for limiting credit growth would enhance the
6
effectiveness of the CBRT’s policies. In other words, for the effectiveness of the
policy mix, the importance of fiscal discipline as well as supportive regulations by
other relevant institutions were underscored.
The
preliminary results of the policy mix indicates that the new approach is
appropriate in terms of limiting macro financial risks imposed by short-term capital
inflows (See Section 5-Financial Markets and Financial Intermediation). The CBRT
will continue to jointly use short-term policy rates in addition to non-interest tools in
order to build price stability on a permanent basis, while also observing financial
stability from a macro perspective.
In sum, the newly adopted monetary policy by the CBRT is country-specific and
tailored to current economic climate. The CBRT, by emphasizing financial stability,
has focused on current account, the quality of financing and credit growth. In
other words, the emphasis on financial stability encompasses a macro
perspective and reflects a period-specific communication strategy. Therefore, in
the upcoming period, macro financial risks may be highlighted through other
variables.
6 Summary
of the March 2011 MPC meeting.
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
Charts
1. OVERVIEW
Chart 1.1.1.
Chart 1.2.1.
Chart 1.2.2.
Chart 1.2.3.
Chart 1.3.1.
CBRT Policy Mix
2
January 2011 Inflation Forecasts and Realizations
Contribution to Annual CPI Inflation
CPI by Subcategories
Inflation and Output Gap Forecasts
3
4
4
6
2. INTERNATIONAL ECONOMIC DEVELOPMENTS
Chart 2.1.1.
Aggregate Growth Rates
12
Chart 2.1.2.
Export and GDP-Weighted Global Production Indices
12
Chart 2.1.3.
Unemployment in Advanced Economies
13
Chart 2.1.4.
Real Estate Price Indices in the U.S. Economy
13
Grafik 2.1.5.
JP Morgan Global PMI
13
Chart 2.1.6.
PMI Indices
13
Chart 2.2.1.
S&P Goldman Sachs Commodity Prices
14
Chart 2.2.2.
Crude Oil (Brent) Prices
14
Chart 2.2.3.
OPEC Capacity, Quotas and Production
15
Chart 2.2.4.
OECD Crude Oil Inventories
15
Chart 2.3.1.
CPI Inflation in Advanced and Emerging Economies
16
Chart 2.3.2.
Core CPI Inflation in Advanced and Emerging Economies
16
Chart 2.4.1.
Global Risk Appetite
17
Chart 2.4.2.
Bond Spreads in Selected Countries over German Bonds
18
Chart 2.4.3.
CDS Rates in Selected Countries
18
Chart 2.4.4.
Global Stock Markets
18
Chart 2.4.5.
Exchange Rate and Risk Premium Indicators for Emerging Economies
18
Chart 2.4.6.
U.S. Yield Curve
19
Chart 2.4.7.
Expectations of FOMC Rate Changes
19
Chart 2.4.8.
U.S. Lending Survey
19
Chart 2.4.9.
Euro Area Lending Survey
19
Chart 2.5.1.
Policy Rate Changes in Advanced Economies from Sept. 2007 to Mar. 2011
21
Chart 2.5.2.
Policy Rate Changes in Emerging Economies from Sept. 2007 to Mar. 2011
21
Chart 2.5.3.
Policy Rates in Advanced Economies
21
Chart 2.5.4.
Policy Rates in Inflation-Targeting Emerging Economies
21
Chart 2.5.5.
Expectations of Rate Changes
22
3. INFLATION DEVELOPMENTS
Chart 3.1.1.
CPI by Subcategories
23
Chart 3.1.2.
Contribution to Annual CPI Inflation
23
Chart 3.1.3.
Unprocessed Food and Consumer Prices
24
Chart 3.1.4.
Subcategories of Unprocessed Food and Consumer Prices
24
Chart 3.1.5.
Food Prices
25
Chart 3.1.6.
Selected Processed Food Prices
25
Chart 3.1.7.
Energy Prices
25
Chart 3.1.8.
Enegy and Oil Prices
25
Chart 3.1.9.
Prices of Core Goods
27
Chart 3.1.10.
Prices of Core Goods
27
Chart 3.1.11.
Prices of Services by Subcategories
27
Chart 3.1.12.
Prices of Services by Subcategories
27
Chart 3.1.13.
Core Inflation Indicators SCA-H and SCA- I
28
Chart 3.1.14.
Core Inflation Indicators SCA-H and SCA- I
28
Chart 3.1.15.
CPI Diffusion Index Prices
28
Chart 3.1.16.
SCA-H Diffusion Index
28
Chart 3.1.17.
Agricultural Prices
29
Chart 3.1.18.
Manufacturing Industry and PMI Output Prices
29
Chart 3.2.1
12 and 24-Month Ahead CPI Expectations
30
Chart 3.2.2.
Inflation Expectations Curve
30
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Central Bank of the Republic of Turkey
Chart 3.2.3.
Distribution of 12-Month Ahead Inflation Expectations
31
Chart 3.2.4.
Distribution of 24-Month Ahead Inflation Expectations
31
4. SUPPLY AND DEMAND DEVELOPMENTS
Chart 4.1.1.
Contribution to GDP Growth by Demand Components
36
Chart 4.1.2.
GDP and the Final Domestic Demand
36
Chart 4.1.3.
Consumer Confidence
36
Chart 4.1.4.
12-Month Ahead BTS Expectations for Investment
36
Chart 4.1.5.
Production and Import Quantity Indices of Consumption Goods
37
Chart 4.1.6.
Domestic Sales of Automobiles
37
Chart 4.1.7.
Weekly Consumer Loans
37
Chart 4.1.8.
3-Months Ahead BTS Expectations for Orders of Consumption Goods in the
Domestic Market
37
Chart 4.1.9.
Production and Import Quantity Indices of Capital Goods
38
Chart 4.1.10.
Domestic Sales of Commercial Vehicles
38
Chart 4.1.11.
Private Demand
38
Chart 4.2.1.
Contribution of Net External Demand to Annual GDP Growth
39
Chart 4.2.2.
Exports and Imports of Goods and Services
39
Chart 4.2.3.
Quantity Index for Exports Excluding Gold
40
Chart 4.2.4.
Imports and Industrial Production Indices for the Global Economy
40
Chart 4.2.5.
Export-Weighted Global Production Index
40
Chart 4.2.6.
3-Month Ahead BTS Expectations for Export Orders
40
Chart 4.2.7.
Quantity Index for Imports
41
Chart 4.2.8.
Imports
41
Chart 4.2.9.
Current Account Balance
41
Chart 4.3.1.
Non-Farm Employment
42
Chart 4.3.2.
Unemployment
42
Chart 4.3.3.
Industrial Employment and Production
43
Chart 4.3.4.
Manufacturing Industry Employment
43
Chart 4.3.5.
Job Opportunities over the next 6 Months
43
Chart 4.3.6.
Private Sector Job Vacancy Rate and Unemployment Benefit Applications
43
Chart 4.3.7.
Hourly Labor Cost Prices
44
Chart 4.3.8.
Household Spending, Non-Farm Employment and Real Wages
44
Chart 4.3.9.
Non-Farm Value Added and Employment
44
5.
FINANCIAL MARKETS AND FINANCIAL INTERMEDIATION
Chart 5.1.1.
Regional CDS Indices
52
Chart 5.1.2.
EMBI
52
Chart 5.1.3.
TL Required Reserve Ratios
53
Chart 5.1.4.
CBRT Interest Rates
53
Chart 5.1.5.
Volatility of O/N Repo Rates
53
Chart 5.1.6.
Volatility of CCS Rates
53
Chart 5.1.7.
Net Portfolio of Non-Residents
54
Chart 5.1.8.
Banking Sector Off-Balance Sheet FX Position
54
Chart 5.1.9.
Average Maturity of TL Deposits
55
Chart 5.1.10.
Yield Curve of TL Savings Deposits
55
Chart 5.1.11.
First-Quarter Changes in 2-year Market Rates
55
Chart 5.1.12.
Yields on GDBS
55
Chart 5.1.13.
12-Month Ahead CBRT Repo Rate Expectations
56
Chart 5.1.14.
12-Month Ahead CPI Inflation Expectations
56
Chart 5.1.15.
Yield Curve
56
Chart 5.1.16.
Interest Rate Spread
56
Chart 5.1.17.
Share of Securities in Banking Sector Balance Sheet
57
Chart 5.1.18.
Share of Non-Residents in GDBS Market
57
Chart 5.1.19.
2-year Real Interest Rates for Turkey
57
Chart 5.1.20.
2-year Real Interest Rates
57
Chart 5.1.21.
TL Currency Basket and Risk Premium Indicators
58
Chart 5.1.22.
TL and Emerging Market Currencies
58
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 5.1.23.
Implied Volatility of Exchange Rates
58
Chart 5.1.24.
Implied Volatility of Exchange Rates
58
Chart 5.1.25.
Balance Sheet Decomposition of M3
59
Chart 5.1.26.
Annual Growth of the Real Monetary Base
60
Chart 5.1.27.
Currency in Circulation and Current Consumption Spending
60
Chart 5.1.28
Market Liquidity
61
Chart 5.2.1
Loans
62
Chart 5.2.2
Loans to GDP
62
Chart 5.2.3
TL Business Loans by Firm Size
62
Chart 5.2.4
FX Business Loans by Firm Size
62
Chart 5.2.5
Maturity of TL Business Loans
63
Chart 5.2.6
Maturity of FX Business Loans
63
Chart 5.2.7
Weekly Growth Rates of TL and FX Business Loans
63
Chart 5.2.8
FX Business Loans to Total Business Loans
63
Chart 5.2.9
TL Business Loan Rates
64
Chart 5.2.10
FX Business Loan Rates
64
Chart 5.2.11
Weekly Growth Rates of Consumer Loans
65
Chart 5.2.12
Consumer Loan Spread over CCS Rates
65
6.
PUBLIC FINANCE
Chart 6.1.
Chart 6.1.1.
Chart 6.1.2.
Chart 6.1.3.
Chart 6.2.1.
Chart 6.2.2.
Chart 6.2.3.
Chart 6.2.4.
Central Government Budget Balance and EU-Defined Public Debt Stock
Central Government Budget
Real Tax Revenues
Primary Balance
Public Debt Stock Indicators
Structure of the Central Government Debt Stock
Maturity of Borrowing from Domestic and External Markets
Domestic Borrowing
75
76
78
79
80
80
81
81
7. MEDIUM-TERM PROJECTIONS
Chart 7.2.1.
Chart 7.2.2.
Chart 7.3.1.
Chart 7.3.2.
Chart 7.3.3.
Chart 7.3.4.
Revisions to Oil and Import Price Assumptions
Export-Weighted Global Economic Activity Index
Inflation and Output Gap Forecasts
Inflation Forecast
Output Gap Forecast
Inflation Forecast Excluding Unprocessed Food, Tobacco and Alcoholic Beverages
86
87
88
89
89
90
Tables
2. INTERNATIONAL ECONOMIC DEVELOPMENTS
Table 2.1.1.
Growth Forecasts
14
Table 2.2.1.
Production, Consumption and Inventory Estimates for Agricultural Commodities
15
Table 2.3.1.
Inflation Forecasts
16
Table 2.5.1.
Monetary Policy Actions in Emerging Economies
20
3. INFLATION DEVELOPMENTS
Table 3.1.1.
Prices of Goods and Services
26
Table 3.1.2.
Prices of Core Goods
26
Table 3.1.3.
PPI and Subcategorie
30
5. FINANCIAL MARKETS AND FINANCIAL INTERMEDIATION
Table 5.2.1
Changes in Main Balance Sheet Items
66
6. PUBLIC FINANCE
Table 6.1.1.
Central Government Budget Aggregates
76
Table 6.1.2.
Central Government Primary Expenditures
77
Table 6.1.3.
Central Government General Budget Revenues
77
7. MEDIUM-TERM PROJECTIONS
Table 7.1.1.
Decisions on TL Required Reserve Ratios
84
Table 7.1.2.
Decisions on FX Required Reserve Ratios
84
Table 7.2.1.
Revisions to 2011Assumptions
85
Table 7.3.1.
CBRT Inflation Forecasts and Expectations
91
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
Boxes in Previous Inflation Reports
2011-I
2.1. The Sensitivity of the EU Periphery to the Debt Crisis
2.2. Causes of the Increase in the US Long-term Nominal Bond Returns Following the Second Round
of Quantitative Easing
3.1. Sources of Volatility in Unprocessed Food Prices
3.2. An Evaluation of Core Inflation Indicators
5.1. The Derivative Markets and the Recent Developments in the Foreign Exchange Markets
7.1. Financial Stability Under Inflation Targeting: The CBRT's Actions
7.2. The Role of Reserve Requirements in Monetary Policy
7.3. Sources of Revisions to Inflation Forecasts for 2010 Year-End
2010-IV
2.1. Capital Flows to Emerging Market Economies
3.1. Changes in Wheat Prices and Their Effects on Consumer Prices
4.1. Ramadan Effect on Economic Activity
4.2. Uncertainty and Economic Activity
5.1. The Financial Contagion Effect in Foreign Exchange and Capital Markets: Case of Turkey
7.1. Import Price Projections
2010-III
2.1. Determinants of the Monetary Stance in Emerging Economies During the Second Quarter of 2010
3.1. Underlying Inflation
4.1. Capacity Utilization Rates for Domestic and External Markets
4.2. Observations on Employment Conditions
4.3. A Comparison of Non-Farm Employment and Production During Two Crisis Episodes: 2000-2001 and 2008-2009
6.1. Developments in Budget Deficit and Public Debt Stock: An International Comparison
7.1. Monetary Policy Stance During September 2008 – July 2010
2010-II
2.1. Foreign Demand Index for Turkey
3.1. The Role of Meat Prices in Food Price Inflation Spike
4.1. Global Crisis, Foreign Demand Shocks and the Turkish Economy
5.1. The Impact of Monetary Policy Decisions on Market Returns
5.2. Post-Crisis Exit Strategy of Monetary Policy in Turkey
6.1. Fiscal Rule: General Framework and Planned Practice in Turkey
7.1. Communication Policy and Inflation Expectations Following Recent Inflation Developments
2010-I
1.1. A backward Glance on end-2009 Inflatİon Forecasts
3.1. Volatility of Unprocessed Food Inflation in Turkey: A Review of the Current Situation
3.2. Base Eeffects and Their Implications for the 2010 Inflation Outlook
5.1. The Impact of Central bank’s Purchases of Government Securities on Market Returns
5.2. Banks’ Loans Tendency Survey and Changes in Loans
5.3. The Financial Structure of a Firm and the Credit Transmission Mechanism
7.1. Inflation Expectations Before and After the Target Revision in 2008
2009-IV
2.1. Risk of Deflation in the US and the Euro Area
2.2. Capital Flows to Emerging Markets: IIF Forecasts for 2009-2010
3.1. The Course of Durable Goods Prices in 2009: The Impact of Tax Adjustments
4.1. Fınancial Stress and Economic Activity
5.1. Banks' Loans Tendency Survey and Changes in Loans
2009-III
2.1. Global Recessions and Economic Policies
3.1. The Impact of Temporary Tax Adjustments on Consumer Prices
4.1. Measuring Underlying Exports: Are Core Indicators Needed?
5.1. Mid-Crisis Impact of Country Risk on Policy Rates
6.1. The Fiscal Implications of the Global Crisis on Advanced and Emerging Economies
2009-II
1.1. Measures Taken by the Central Bank of the Republic of Turkey to Reduce the Impact of the
Global Crisis
1.2. The Front-Loaded Monetary Policy since November 2008 and Its Effects
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2.1. Expectations About Global Economy
4.1. Monitoring the Trends in Employment: Do We Need Core Measures?
5.1. Changes in the Risk Premium for Emerging Markets and Policy Rate Decisions
5.2. Global Crisis and Financial Intermediation
2009-I
2.1. Expectations About Global Economy
7.1. Accountability Mechanisms in Inflation-Targeting Countries
2008-IV
3.1. Crop Production Forecasts and Price Developments
3.2. An Empirical Analysis of Oil Prices
4.1. Sources of Growth in the Turkish Economy
2008-III
2.1. Recent Developments in Global Inflation and Monetary Policy Measures
3.1. Medium-term Forecasts for Food Prices
4.1. Is There Any Increase in Economic Activity in the Fırst Quarter of 2008?
The Impact of Seasonal Variations and Working Days on National Accounts
5.1. Changes in Liquidity and Monetary Policy Reference Rate
2008-II
2.1. Recent Developments in Global Inflation
3.1. Recent Food Price Developments
4.1. Update of National Accounts Data
5.1. An Overview on Risk remium Volatility and Risk Appetie Elasticity in Emerging Economies
2008-I
2.1. A Brief Overview of the Appreciation of Yuan and Its Likely Results
2007-IV
5.1. Yield Curves and Monetary Policy Decisions
2007-III
3.1. Recent Price Developments in Agricultural Raw Materials
4.1. Structural Change in the Export Performance of Turkey After 2001
2007-II
3.1. Wages and Services Inflation
5.1. Information Contained in the Inflation-indexed Bonds about Inflation Expectations
2007-I
3.1. The Course of Durable Goods Prices after May
3.2. Chinese Effect on Domestic Prices
6.1. Treasury’s 2007 Financing Program
2006-IV
2.1. Results from a Structural VAR Analysis of the Determinants of Capital Flows into Turkey
2.2. Commodity Markets
7.1. Inflation Targeting Regime, Accountability and IMF Conditionality
2006-III
3.1. Behavior of Price Level and Inflation in Case of Likely Shocks
4.1. Results of the Survey on Pricing Behaviour of Firms
4.2. Rise in International Energy Prices and Its Effects on Current Account Deficit
5.1. Debt Structures of Companies in Turkey
2006-II
2.1. International Gold Price Developments and Their Effects on the CPI
3.1. Relative Price Differentiation, Productivity and the Real Exchange Rate
6.1. Inflation Targeting Regime, Accountability and IMF Conditionality
2006-I
2.1. The use of Special CPI Aggregates in the Measurement of Core Inflation
2.2. The Exchange Rate Pass-through in Turkey: Has the Pass-through Changed with the New CPI Index?
3.1. Productivity Developments in the Manufacturing Industry
5.1. Commitments about Fiscal Policy
6.1. Inflation Targeting Strategy and Accountability
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
Abbreviations
bbl
BBVA
BRSA
BTS
CBRT
CCS
CDS
CEEMEA
CPI
ECB
EMBI
EU
Fed
FHFA
FX
barrel
GDBS
GDP
HLFS
ILII
ISE
MENA
MPC
MSCI
MTP
OECD
O/N
OPEC
SCA
SCT
SEE
SME
SSA
S&P
PMI
Government Domestic Borrowing Securities
PPI
TurkStat
TL
U.K.
U.S.
U.S.A.
USD
VIX
VAT
Producer Price Index
104
Banco Bilbao Vizcaya Argentaria
Banking Regulation and Supervision Agency
Business Tendency Survey
Central Bank of the Republic of Turkey
Cross Currency Swap
Credit Default Swap
Central Eastern Europe, Middle East and Africa
Consumer Price Index
European Central Bank
Emerging Markets Bond Index
European Union
Federal Reserve Bank
Federal Housing Finance Agency
Foreign Exchange
Gross Domestic Product
Household Labor Force Survey
Industrial Labor Input Indices
Istanbul Stock Exchange
Middle East and North Africa
Monetary Policy Committee
Morgan Stanley Capital International
Medium-Term Program
Organization for Economic Co-Operation and Development
Overnight
Organization of the Petroleum Exporting Countries
Special CPI Aggregate
Special Consumption Tax
State Economic Enterprises
Small and Medium-Sized Enterprises
Social Security Agency
Standard and Poor’s
Purchasing Managers Index
Turkish Statistical Institute
Turkish Lira
United Kingdom
United States
United States of America
United States Dollar
Volatility Index
Value Added Tax
Inflation Report 2011-II
Central Bank of the Republic of Turkey
2011 Calendar of MPC Meetings, Inflation Reports and
Financial Stability Reports
Monetary Policy Meeting
Inflation Report
(in Turkish)
January 20, 2011
January 25, 2011
(Thursday)
(Tuesday)
Financial Stability Report
(in Turkish)
February 15, 2011
(Tuesday)
March 23, 2011
(Wednesday)
April 21, 2011
April 28, 2011
(Thursday)
(Thursday)
May 25, 2011
May 30, 2011
(Wednesday)
(Monday)
June 23, 2011
(Thursday)
July 21, 2011
July 28, 2011
(Thursday)
(Thursday)
August 23, 2011
(Tuesday)
September 20, 2011
(Tuesday)
October 20, 2011
October 26, 2011
(Thursday)
(Wednesday)
November 23, 2011
November 29, 2011
(Wednesday)
(Tuesday)
December 22, 2011
(Thursday)
Inflation Report 2011-II
105