Download 2. I E D

Central Bank of the Republic of Turkey
2. International Economic Developments
Data released in the previous quarter indicate that global economic
activity followed a sluggish course in the first quarter of the year, which persisted
into the second quarter of the year. This sluggish course by global economic
activity was mainly driven by the negative growth performance of emerging
economies, while the ongoing stagnation in the Euro Area and the slowdown in
the Chinese economy also pulled the global growth down. On the other hand,
capital flows to emerging economies, which trended downwards in the first
quarter due to weak growth performance of emerging economies, also
plummeted in the second quarter. Amid the unfavorable course of global
growth, commodity prices went down in the second quarter of the year,
supporting the low course of global inflation rates. However, in emerging
economies experiencing capital outflows, probable distortions in inflation
expectations due to the depreciation of their currencies may pose upside risks
to inflation.
In line with the languishing course of global economic activity, global
monetary policy remained loose in the second quarter. However, at the end of
May the signs given by the Fed for a cutback followed by a complete
termination of bond purchases in the near future followed largely shaped the
monetary policy in the previous quarter. Subsequent to the declarations of
Federal Reserve Chairman Ben Bernanke, the global risk appetite weakened
while financial market uncertainties heightened and capital flows fluctuated
sharply in emerging economies. On account of these declarations, monetary
policy in emerging economies are likely to be tightened further, should capital
outflows from these economies persist in the forthcoming period. This may weigh
further on growth in emerging economies, and pose a significant downside risk
to the future global growth outlook. In sum, the Fed’s stance regarding bond
purchases in the forthcoming period will largely determine the future course of
the global monetary policy, and thus, the global growth outlook.
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Central Bank of the Republic of Turkey
2.1. Global Growth
Global economic activity trended downwards both in advanced and
emerging economies in the first quarter. In the ongoing recession in the Euro
Area and the decelerating growth of the Chinese economy were particularly
influential on the weak course of global economic activity. The economic
growth in countries with significant shares in Turkish exports remained on a
downward track in the quarter , sustaining this sluggish outlook (Charts 2.1.1 and
2.1.2).
Chart 2.1.1.
Chart 2.1.2.
Global Growth Rates*
Global Growth Rates*
(Annual Percent Change)
Emerging Economies
Advanced Economies
10
(Annual Percent Change)
GDP-Weighted Growth
Export-Weighted Growth
6
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
234123412341234123412341
2008
2009
2010
2011
* Weighted by each country’s share in global GDP.
Source: Bloomberg, CBRT.
2012 2013
5
4
4
3
2
2
1
0
0
-1
-2
-2
-3
-4
-4
-6
-5
2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2008
2009
2010
2011
2012 2013
* Weighted by each country’s share in Turkish exports for exportweighted growth.
Source: Bloomberg, CBRT.
The US economy, which grew by 1.8 percent in annualized terms mainly
on the back of private consumption spending in the first quarter, is expected to
grow further in the second quarter of the year. However, the emerging
uncertainty in May due to implementation of contractionary fiscal policy since
early 2013 in addition to the Fed’s declaration to terminate the bond
purchasing program under the third monetary easing package may bear an
adverse effect on economic activity in this period, and growth may remain
below the first-quarter figures. In fact, the US PMI data tumbled in the second
quarter compared to the first quarter of the year (Chart 2.1.3).
The Euro Area economy continued to contract in the first quarter and the
GDP recorded a year-on-year decline by 1.1 percent. PMI indices show that the
economic contraction will persist in the second quarter and the rise in the
unemployment rate, which lingered in April and May, supports this assertion
(Chart 2.1.4).
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Chart 2.1.3.
Chart 2.1.4.
The US PMI Indices
The Euro Area PMI Indices
Manufacturing
Services
Source: Markit.
40
35
35
30
30
0313
40
0912
45
0312
45
0911
50
0311
20
50
0910
20
55
0310
26
55
0909
26
60
0309
32
Manufacturing
60
0908
32
0313
38
0912
38
0312
44
0911
44
0311
50
0910
50
0310
56
0909
56
0309
62
0908
62
0308
68
0308
Services
68
Source: Markit.
As for the emerging economies, China continued to decelerate after
registering a year-on-year growth by 7.7 percent in the first quarter and grew by
7.5 percent in the second quarter. Investments provided the largest contribution
to the growth by 5.9 percentage points, and the contribution of consumption
remained limited, while external trade pulled the growth down. Therefore, the
Chinese economy lacked a demand-driven growth outlook in the second
quarter as well. Due to strong perceptions that the slowdown will continue, the
Chinese economy is more likely to undershoot the growth target of 7.5 percent
by the end of 2013. In such a case, it will be striking for China to fall behind the
growth target for the first time since the Asian financial crisis 15 years ago.
The economic slowdown in both advanced and emerging economies in
the first quarter of the year is estimated to persist in the second quarter. More
specifically, the growth outlook of emerging economies may deteriorate the
rest of the year, should emerging economies continue to experience capital
outflows in the upcoming period, due to mounting uncertainties in May
regarding the Fed’s expansionary monetary policy in the form of bond
purchases. In fact, the global PMI data pertaining to the second quarter point
out that the global economic activity posted a quarter-on-quarter decline both
in the manufacturing and the services sectors (Chart 2.1.5). In addition, growth
forecasts from the 2013 Consensus Forecasts were revised considerably
downwards in July compared to the previous reporting period (Table 2.1.1).
Accordingly, the GDP and the export-weighted global production indices
updated by July growth forecasts were revised downwards in the inter-reporting
Inflation Report 2013-III
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Central Bank of the Republic of Turkey
period (Chart 2.1.6). In sum, the unfavorable global growth performance will
persist in the upcoming period, and continue to weigh on Turkey’s external
demand.
Chart 2.1.5.
Chart 2.1.6.
Markit Global PMI Indices
Global Production Indices*
(2008Q2=100)
Services
April 2013 (Export-Weighted)
July 2013 (Export-Weighted)
April 2013 (GDP-Weighted)
July 2013 (GDP-Weighted)
Manufacturing
65
112
65
60
110
60
112
110
108
108
106
106
55
55
50
50
104
104
45
102
102
100
100
45
40
40
98
35
96
30
94
0313
0912
0312
0911
0311
0910
0310
0909
0309
0908
0308
30
35
98
Actual
Forecast
1234123412341234123412341234
2007 2008 2009 2010 2011 2012 2013
96
94
* Weighted by each country’s share in Turkey’s exports for exportweighted indices.
Source: Bloomberg, Consensus Forecasts, CBRT.
Source: Markit.
Table 2.1.1.
Growth Forecasts for end-2013 and end-2014
Consensus Forecasts
(Average Annual Percent Change)
April
July
2013
2014
2013
2014
2.6
3.2
2.4
3.1
-
-
USA
2.1
2.7
1.8
2.7
Euro Area
-0.4
0.9
-0.6
0.8
Germany
0.7
1.7
0.4
1.6
France
-0.1
0.7
-0.3
0.6
Italy
-1.4
0.5
-1.8
0.4
Spain
-1.6
0.2
-1.6
0.3
Greece
-4.9
-1.4
-4.8
-1.0
Japan
1.3
1.3
1.9
1.5
UK
0.7
1.6
1.0
1.7
-
-
Asia-Pacific
6.6
6.7
6.1
6.4
China
8.2
8.0
7.5
7.6
India
6.1
6.8
5.9
6,6
3.4
3.8
3.0
3.7
3.1
3.7
2.5
3.2
2.7
3.6
2.3
3.3
World
Advanced Economies
Emerging Economies
Latin America
Brazil
Eastern Europe
Source: Consensus Forecasts.
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Inflation Report 2013-III
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2.2. Commodity Prices
In the second quarter of 2013, all subcategories of the commodity price
index declined and the headline commodity index posted a quarter-on-quarter
decline by 6.4 percent. During this period, energy prices, industrial metal prices,
agricultural prices and precious metal prices fell by 4.7, 9.8, 12 and 23.8 percent,
respectively (Chart 2.2.1).
Chart 2.2.1.
Chart 2.2.2.
S&P Goldman Sachs Commodity Prices
Crude Oil Inventories in the US
(January 2009=100)
(Million barrel)
280
280
Source: Bloomberg.
0713
80
0113
80
0712
120
0112
120
0711
160
0111
160
0710
200
0110
200
0709
240
0109
240
450
450
400
400
350
350
300
300
250
250
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Headline
Energy
Industrial Metals
Precious Metals
Agriculture
Source: The US Department of Energy.
In the second quarter of the year, both supply and demand-side
developments were influential on oil prices. As for demand, indicators of the
weak global economic activity, particularly the slowdown in the Chinese
economy, coupled with the declarations of the Fed regarding the future
monetary policy posed a downside risk to oil prices. The high levels of oil
inventories in the US due to rising crude oil production also draw a favorable
outlook regarding oil prices (Chart 2.2.2). On the other hand, the ongoing
political unrest in the Middle East is closely monitored for its potential to raise
concerns over the oil supply. In particular, the developments in Egypt create a
risk to crude oil transportation, while setbacks in crude oil production in Libya,
Nigeria and Iraq are considered as other risk factors. In fact, oil prices, which
hovered around USD 102 across the second quarter, climbed to USD 109 in the
midst of July upon these developments. Against this backdrop, 18-month
forward contracts indicate that oil prices increased in the previous reporting
period, especially at the short-term maturity (Chart 2.2.3).
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Central Bank of the Republic of Turkey
Chart 2.2.3.
Chart 2.2.4.
Crude Oil (Brent) Prices*
WTI – Brent Prices
(USD/bbl)
(USD/bbl)
April 26
July 26
Brent
Spot
140
140
120
120
WTI
Spread (right axis)
140
30
130
25
120
100
100
20
110
15
100
* April 26 and July 26 denote the arithmetical average of the prices
quoted in futures contracts during April 1 and 26, 2013 and July 1
and 26, 2013, respectively.
Source: Bloomberg.
0713
0413
0113
1012
0712
0412
0112
-5
1011
60
0711
0
0411
70
0111
40
0109
0509
0909
0110
0510
0910
0111
0511
0911
0112
0512
0912
0113
0513
0913
0114
0514
0914
40
5
80
1010
60
0710
60
10
90
0410
80
0110
80
Source: Bloomberg.
Having narrowed gradually in 2013, the WTI - Brent oil price spread has
reached the lowest levels since early 2011 (Chart 2.2.4). This narrowing was
fuelled by the alleviated demand-side pressure on the Brent crude oil due to
the rising US crude oil production. Moreover, the insufficiency of oil pipelines in
Oklahoma (price settlement point for the WTI) led to excess supply, which
posed a downside pressure on the WTI prices. However, this excess supply is on
the decline due to the new oil pipeline projects, and this is considered to be
another factor that pulls the price spread down.
Agricultural prices trended downwards and slumped by 12 percent in the
second quarter of 2013, after having soared in the summer of 2012 upon the
severe drought. Despite favorable expectations for the production and
inventory levels of agricultural products, the future course of agricultural prices
remains uncertain due to weather conditions, keeping both downside and
upside risks brisk throughout 2013.
2.3. Global Inflation
In the second quarter of 2013, headline and core consumer inflation rates
in advanced economies have slightly risen since the release of the previous
Report. Nevertheless, headline consumer inflation in emerging economies
trended downwards due to the sluggish growth performances in the start of the
second quarter; yet posting an increase in June, consumer inflation remained
above the figures projected in the previous Inflation Report. However, core
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Inflation Report 2013-III
Central Bank of the Republic of Turkey
inflation rates in emerging economies followed a flat course and remained
unchanged in the inter-reporting period (Charts 2.3.1 and 2.3.2).
Chart 2.3.1.
Chart 2.3.2.
CPI Inflation in Advanced and Emerging
Economies
Core Inflation in Advanced and Emerging
Economies
(Annual Percent Change)
(Annual Percent Change)
Emerging Economies
Advanced Economies
Emerging Economies
Advanced Economies
2
0
0
1
1
-2
-2
0
0
0608
1209
0609
1208
0608
0613
2
Source: Bloomberg, CBRT.
6
1212
2
0612
2
1211
3
0611
3
1210
4
0610
4
1209
4
0609
4
1208
6
0613
6
1212
5
0612
5
1211
8
0611
8
1210
6
0610
10
10
Source: Bloomberg, Datastream, CBRT.
As of the end of the third quarter of 2013, both the US and the Euro Area
inflation compensation hover below the readings of the previous reporting
period. The growing expectation that the contraction in the Euro Area will
continue led to lower compensation rates in the region. Similarly, both the
expectation for a slowdown in growth rates and the envisaged tightening in the
monetary policy upon the recent declarations of the Fed pulled the US inflation
compensation down in the second quarter (Chart 2.3.3).
Chart 2.3.3.
Inflation Compensation in the US and the Euro Area
(Percent)
Euro Area
3.5
USA
3.5
0.0
0713
0.5
0.0
0113
0.5
0712
1.0
0112
1.0
0711
1.5
0111
2.0
1.5
0710
2.0
0110
2.5
0709
2.5
0109
3.0
0708
3.0
Source: Bloomberg.
Global inflation forecasts suggest that parallel to the growth forecasts,
which were revised downwards, inflation forecasts for end-2013 and end-2014
were mostly revised downwards as well (Table 2.3.1). Having experienced
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Central Bank of the Republic of Turkey
excessive capital outflows in the previous quarter, Latin America, which
currently experiences soaring inflation rates, saw an upward revision in end-2013
inflation forecasts. Accordingly, inflation rates in emerging economies may see
upside pressures should capital outflows from these economies persist in the
forthcoming period and the depreciation of their currencies permanently
deteriorate inflation expectations. On the other hand, commodity prices, which
decreased in the second quarter of the year, are not expected to exert
pressure on global inflation rates in the upcoming period given the weak global
economic activity.
Table 2.3.1.
Inflation Forecasts for end-2013 and end-2014
(Annual Percent Change)
April
World
Advanced Economies
USA
Euro Area
Germany
France
Italy
Spain
Greece
Japan
UK
Emerging Economies
Asia-Pacific*
China
India
Latin America
Brazil
Eastern Europe
2013
2.8
1.9
1.7
1.7
1.2
1.9
2.0
-0.1
0.1
2.9
3.9
3.2
8.2
6.6
5.7
5.2
July
2014
3.1
2..1
1.6
2.0
1.6
1.7
1.5
1.3
1.9
2.5
4.0
3.5
7.4
6.5
5.7
5.0
2013
2.6
1.5
1.5
1.6
1.0
1.5
1.7
2014
3.0
1.9
1.5
1.9
1.4
1.6
1.4
0.0
2.7
3.6
2.6
8.1
7.0
5.8
4.9
2.1
2.5
3.8
3.2
7.3
6.7
5.6
4.9
* Excluding Japan.
Source: Consensus Forecasts.
2.4. Financial Conditions and Risk Indicators
The second quarter of 2013 was marked by persisting uncertainties due to
concerns over global growth and hints given by the Fed that the bond-buying
program may end in the upcoming period. The global risk appetite displayed a
decline in this period (Chart 2.4.1). Meanwhile, Bernanke’s emphasis as of late
June that the monetary policy would remain flexible has recently led the global
risk appetite to re-settle on a path of recovery. Against this backdrop, Fed funds
futures contracts imply higher prospects for an earlier-than-expected rise in the
US policy rate, which has long been kept around zero (Chart 2.4.2). In addition,
the expected policy rate hike also rose considerably.
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Inflation Report 2013-III
Central Bank of the Republic of Turkey
Chart 2.4.1.
Chart 2.4.2.
Global Risk Appetite
Policy Rate Futures in the US
(Percent)
Credit Suisse Risk Appetite Index
VIX (inverted, right axis)
6
July 26
10
4
15
2
20
April 26
2.0
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
-4
35
-6
40
0713
0113
0712
0112
0711
0111
0710
45
0110
-8
0116
0.8
0715
30
0115
1.0
-2
0714
1.0
0114
25
0713
0
Maturity
Source: Bloomberg, Credit Suisse.
Source: Bloomberg.
Parallel to the tightening of the US monetary policy expectations, medium
and long-term yields recorded an upsurge (Chart 2.4.3). On the other hand, the
US monetary policy developments besides fluctuations in the global risk
appetite created uncertainties regarding the value of the USD, which is the
reserve currency with the most widespread use on a global scale. As a result,
implied volatilities of exchange rate options with 1-month maturity for the
currencies of both advanced and emerging economies soared in the second
quarter in the inter-reporting period (Chart 2.4.4). Meanwhile, the Fed’s
declarations that calmed the markets in July also reflected the implied
exchange rate volatilities.
Chart 2.4.3.
Chart 2.4.4.
The US Yield Curve
Implied Volatility of Exchange Rates*
(Against USD, Percent)
Source: Bloomberg.
20
15
15
10
10
5
5
0
0
0713
-0.5
20
0113
0.0
25
0712
0.0
-0.5
30
25
0112
0.5
30 -year
0.5
20 -year
1.0
7 -year
1.5
1.0
10 -year
1.5
5 -year
2.0
4 -year
2.5
2.0
3 -year
2.5
2 -year
3.0
1 -year
3.0
6 -month
3.5
3 -month
3.5
Advanced Economies
Emerging Economies
30
0111
4.0
0710
4.0
April 26
0110
Change
July 25
0711
(Percent)
* Advanced economies include Euro Area, Japan, UK, Australia,
Switzerland and Canada. Emerging economies include Mexico,
Brazil, South Korea, Poland, Hungary, Czech Republic and South
Africa.
Source: Bloomberg.
In the second quarter of the year, concerns over the global risk appetite
and growth had adverse effects on the stock markets of both advanced and
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emerging economies. However, as investors were attracted to countries
considered to be safe havens in this period, the downturn in the stock markets
of advanced economies, particularly the USA, remained limited compared to
emerging economies (Chart 2.4.5). In the same period, parallel to stock market
developments, yields on emerging market bonds increased far above those of
the US Treasury bills (Chart 2.4.6).
Chart 2.4.5.
Chart 2.4.6.
Global Stock Markets
Regional EMBI Developments
(USD, 2007=100)
(5-year)
400
300
300
70
200
200
60
60
100
100
0110
0713
400
0113
70
0713
80
0113
80
0712
90
0112
90
0711
100
0111
100
0710
110
0110
110
0712
120
0112
120
0711
500
Asia
Latin America
500
0710
MSCI - Advanced Economies
0111
Global
Europe
MSCI - Emerging Economies
* EMBI indices denote the yield spread of the USD-denominated bills
and bonds of countries over US Treasury bills and bonds.
Source: Bloomberg.
Source: Bloomberg.
Similar to the emerging economies, bond yields of troubled countries in
the Euro Area have recently trended upwards compared to the government
bond yields of Germany, which is considered to be a safe haven (Chart2.4.7).
Meanwhile, the LIBOR-OIS spread, which shows the counterparty risk and
liquidity conditions in money markets, remained virtually unchanged both in the
US and the Euro Area in the second quarter (Chart 2.4.8).
Chart 2.4.7.
Chart 2.4.8.
Yield Spread over German Bonds in GIIPS
Countries *(10-Year, Percent)
LIBOR-OIS Spread
(3-Month, Point)
Greece (left axis)
Portugal
Ireland
Spain
Italy
60
Euro
20
17
50
USD
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
14
40
11
30
8
20
* GIIPS countries are Greece, Ireland, Italy, Portugal and Spain.
Source: Bloomberg.
22
0713
0113
0712
0112
0711
0111
0710
0713
0113
0712
0112
0711
0111
-1
0710
0
0110
2
0110
5
10
Source: Bloomberg.
Inflation Report 2013-III
Central Bank of the Republic of Turkey
According to the ECB’s bank lending survey for the July 2013, tight credit
conditions in the banking sector were slightly alleviated, while credit demand
contracted further in the Euro Area (Chart 2.4.9). As per the latest lending survey
released by the Fed, easing in lending conditions continued throughout the first
quarter, and the loan demand of not only the large and medium-sized but also
of small firms increased in the US (Chart 2.4.10).
Chart 2.4.9.
Chart 2.4.10.
The ECB Bank Lending Survey*
The Fed Bank Lending Survey*
(Percent)
(Percent)
Loan Standards (Large Firms)
Loan Standards (SME)
Loan Demand (Large Firms)
Loan Demand (SME)
Loan Standards (LMF)
Loan Standards (SF)
Loan Demand (LMF)
Loan Demand (SF)
100
100
75
75
75
75
50
50
50
50
25
25
25
25
0
0
0
0
100
100
* Upward movements denote tightening in credit conditions.
Source: ECB.
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2013
2012
2011
2010
-75
2009
-75
2008
-50
-75
2007
-50
-75
2006
-25
-50
2005
-25
-50
2004
-25
2003
-25
Source: Fed.
2.5. Capital Flows
Having trended downwards in the first quarter of 2013, capital flows
towards emerging economies plummeted in the second quarter (Chart 2.5.1).
The new quantitative easing policy announced by BoJ in April had a limited
impact on capital flows towards emerging economies. On the other hand,
declarations by Bernanke in May and June besides hints given by the Fed that it
would cut down on asset purchases by the end of 2013 and quantitative easing
policy would completely be terminated in the midst of 2014, triggered capital
outflows from emerging economies. Fund inflows towards fixed-rate security
markets continued at a diminishing pace in April and May compared to the
previous quarter, while stock markets saw outflows (Chart 2.5.2). Parallel to the
deteriorated risk appetite in June upon concerns over the probable decline in
the global liquidity, both equity funds and bond funds saw severe outflows. In
sum, the second quarter was marked by increased volatility in capital flows.
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Central Bank of the Republic of Turkey
Chart 2.5.1.
Chart 2.5.2.
Annual Portfolio Flows to Emerging Economies
Monthly Portfolio Flows to Emerging Economies
(Cumulative, Billion USD)
(Billion USD)
Bond Funds
Equity Funds
Bond Funds
VIX Index (inverted, right axis)
Equity Funds
100
100
40
80
80
30
60
60
20
40
40
20
20
10
20
30
10
0
40
-10
0
60
-30
Source: EPFR, Bloomberg.
0113
0712
0112
0711
0111
0710
0110
0709
0108
70
0109
-40
0113
0712
0112
0711
0111
0710
0110
0709
-40
0109
-40
0708
-20
0108
-20
50
-20
0708
0
Source: EPFR, Bloomberg.
On a quarterly basis, more than half of the capital inflows in the first
quarter were redeemed in the second quarter of the year (Table 2.5.1). As for
portfolio composition, most of the outflows were composed of equity funds,
while in terms of regional distribution, the Latin American countries experienced
a quarter-on-quarter increase in capital outflows.
Table 2.5.1.
Composition of Portfolio Flows to Emerging Economies (Quarterly, Billion USD)
Portfolio Composition
Total
2012
2013
Q1
Q2
Q3
Q4
Q1
Q2
32.4
-3.5
19.2
42.8
42.9
-24.5
Equity Funds
Bond Funds
21.2
-7.8
7.0
27.9
27.8
-21.4
11. 2
4.3
12.1
14.9
15.1
-3.0
Regional Composition
Emerging
Asia
14.7
-4.0
6.2
24.0
24.5
-12.9
Emerging
Europe
5.7
0.0
4.5
6.3
6.2
-3.8
Latin
America
9.3
0.2
6.8
9.9
9.2
-6.7
MENA
2.7
0.3
1.7
2.7
3.0
-1.0
Source: EPFR.
In the inter-reporting period, the downside risks regarding push and pull
factors determining capital flows towards emerging economies increased in the
upcoming period. Alongside the higher probability of a fall in global liquidity,
the elevated risk aversion of international investors is considered to be a factor
that may weigh on capital flows. Moreover, the US gave signs for economic
recovery, while emerging economies posted a weaker-than-expected growth
outlook. This may lead capital flows to decline further. In this respect, due to the
probable weak course of capital flows in addition to increased volatility, risks to
financial stability in emerging economies are likely to remain brisk in the
upcoming period.
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Central Bank of the Republic of Turkey
2.6. Global Monetary Policy Developments
Policy rates were pulled down in advanced economies, while policy rate
changes across emerging economies were mixed in the second quarter of
2013. The central banks of many advanced economies, which kept policy rates
unchanged in the first quarter, opted for reductions mainly upon the
deterioration of expectations regarding global growth. In this context,
especially the ECB as well as the Bank of Israel, the Bank of South Korea and the
Reserve Bank of Australia implemented policy rate reductions in the second
quarter (Chart 2.6.1). As for emerging economies, Hungary and Poland, opting
for the most aggressive policy rate reductions in 2012 and in the first quarter of
2013, implemented further policy rate cuts in the second quarter of the year (75
basis points each in April and July). Due to inflationary concerns besides the
volatility that emerged in financial markets subsequent to the declarations of
Bernanke, Banco do Brasil and the Bank of Indonesia raised policy rates by 125
and 75 basis points, respectively (Chart 2.6.2).
Chart 2.6.1.
Chart 2.6.2.
Policy Rate Changes in Advanced Economies from
Jan. 2012 to Jul. 2013* (Basis Points
Policy Rate Changes in Emerging Economies from
Jan. 2012 to Jul. 2013* (Basis Points)
500
120
-100
-300
-300
-500
-500
Romania
-100
Turkey
100
South Africa
100
Russia
300
Hungary
-180
Czech Republic
-180
Euro Area
-130
Norway
-130
Canada
-80
Australia
-80
South Korea
-30
Sweden
20
Israel
20
-30
500
300
Indonesia
70
May'13
2013Q1
2012Q1 - 2012Q2
Poland
70
* As of July 12, 2013.
Source: Bloomberg, CBRT.
Jun'13
Apr'13
2012
170
Colombia
2013Q1
Peru
May'13
2012
Thailand
Jun'13
Apr'13
Chile
120
Jul'13
Brazil
170
* As of July 12, 2013.
Source: Bloomberg, CBRT.
Despite diversity in policy rates, the most striking development regarding
the monetary policy has been the recent signals given by the Fed that it will cut
down on bond purchases, and then terminate them in the close future. Firstly, a
perception arose that tightening might start in markets upon the favorable
outturn of employment data on May, 3 and long-term interest rates posted an
increase (Chart 2.6.3). Following this, in a speech on May 22, Bernanke stated
that bond purchases might be reduced due to the relatively positive course of
labor markets. This prompted higher prospects for an earlier-than-expected
Inflation Report 2013-III
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Central Bank of the Republic of Turkey
policy rate hike, which has long been kept around zero in the US and also led to
an increase in the expected policy rate hike (Chart 2.4.2). Moreover, following
this announcement, market rates were boosted across the globe, including the
US, and emerging market currencies depreciated upon capital outflows. This
announcement was also confirmed by declarations following the FOMC
meeting of June 19. The Fed stated that the policy rate would remain low until
the unemployment rate fell below 6.5 percent and bond purchases would be
reduced gradually towards the year-end and might fully end when the
unemployment rate declines to around 7 percent in the midst of 2014.
Chart 2.6.3.
Yields on US Treasury Bills (10-Year, Percent)
3.0
Release of the
FOMC meeting minutes
and Bernanke's speech on July 11
3.0
2.8
FOMC meeting on June 19
2.8
2.6
2.6
Bernanke's speech on
May 22
2.4
2.2
2.4
Release of employment
data on May 3
2.2
2.0
1.8
1.8
1.6
1.6
1.4
1.4
07.02.2012
07.16.2012
07.30.2012
08.13.2012
08.27.2012
09.10.2012
09.24.2012
10.08.2012
10.22.2012
11.05.2012
11.19.2012
12.03.2012
12.17.2012
12.31.2012
01.14.2013
01.28.2013
02.11.2013
02.25.2013
03.11.2013
03.25.2013
04.08.2013
04.22.2013
05.06.2013
05.20.2013
06.03.2013
06.17.2013
07.01.2013
07.15.2013
2.0
Source: Bloomberg.
Following the announcements, the yields on 10-year US Treasury billsclimbed from 1.93 percent in the first quarter to 2.52 percent in the second
quarter. According to Bloomberg’s July survey, the expected rise in long-term
rates, which increased compared to the June survey, points out that the Fed’s
statement on June 19 supported the expectations for a contraction in liquidity.
Meanwhile, upon the release of the minutes of the FOMC meeting, Bernanke
emphasized at a conference on July 11 that the unemployment rate overstates
the condition of labor markets, and a highly accommodative monetary policy
is needed for the foreseeable future. In his statements, Bernanke conveyed the
message to the markets that the reaction as well as the panic was excessive.
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Central Bank of the Republic of Turkey
Chart 2.6.4.
Chart 2.6.5.
Expected Policy Rates in Advanced Economies
Policy Rate
Expected Policy Rate (April)
Expected Policy Rate (July)
0.85
Expected Policy Rates in Inflation-Targeting
Emerging Economies
Policy Rate
Expected Policy Rate (April)
Expected Policy Rate (July)
0.85
6.75
0.80
0.80
6.50
6.50
0.75
0.75
6.25
6.25
0.70
0.70
6.00
6.00
0.65
0.65
5.75
5.75
5.50
5.50
0.60
0.60
6.75
0.55
0.55
0.50
0.50
5.25
5.25
0.45
0.45
5.00
5.00
0.40
0.40
4.75
1 2 3 4 1 2 3 4 1 2 3 4 1 2
2011
2012
Source: Bloomberg, CBRT.
2013
2014
4.75
1
2
3
4
1
2011
2
3
2012
4
1
2
3
2013
4
1
2
2014
Source: Bloomberg, CBRT.
In the second quarter of 2013, the average policy rate in advanced
economies receded more than envisaged in April to 0.45 percent (Chart 2.6.4).
The average policy rate in emerging economies increased in tandem with the
April Inflation Report expectations by 2 basis points to 4.92 percent (Chart 2.6.5).
Expectations for forward 12-month average policy rates remained broadly
unchanged for emerging economies in the inter-reporting period. Expectations
were revised downwards for advanced economies because of the expectation
of another policy rate cut of 25 basis points by the ECB. Currently, the average
expected policy rates give no clear signs of tightening in neither advanced nor
emerging economies. However, emerging economies are expected to opt for
tightening, should they experience an accelerated pace of capital outflows,
which have already been ongoing upon Bernanke’s statements.
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Inflation Report 2013-III