Download 2015-IV

2015-IV
Contents
1.
2.
3.
4.
5.
6.
7.
OVERVIEW
1
1.1. Monetary Policy and Financial Conditions
2
1.2. Macroeconomic Developments and Main Assumptions
5
1.3. Inflation and the Monetary Policy Outlook
8
1.4. Risks and the Monetary Policy
9
INTERNATIONAL ECONOMIC DEVELOPMENTS
13
2.1. Global Growth
13
2.2. Commodity Prices and Global Inflation
16
2.3. Financial Conditions, Risk Indicators and Capital Flows
18
2.4. Global Monetary Policy
19
INFLATION DEVELOPMENTS
21
3.1. Core Inflation Outlook
22
3.2. Food, Energy and Alcohol-Tobacco Prices
26
3.3. Domestic Producer Prices
28
3.4. Expectations
30
SUPPLY AND DEMAND DEVELOPMENTS
31
4.1. Supply Developments
31
4.2. Demand Developments
33
4.3. Labor Market
39
FINANCIAL MARKETS AND FINANCIAL INTERMEDIATION
57
5.1. Financial Markets
58
5.2. Credit Volume and Monetary Indicators
68
PUBLIC FINANCE
81
6.1. Budget Developments
82
6.2. Developments in the Public Debt Stock
85
MEDIUM-TERM FORECASTS
91
7.1. Current State, Short-Term Outlook and Assumptions
91
7.2. Medium-Term Forecasts
94
Box 4.1. Determinants of Consumer Confidence Index in Turkey
43
Box 4.2. Estimating Income and Price Elasticity of Turkish Exports with Heterogeneous
Panel Time Series Methods
46
Box 4.3. Use of Leading Indicators in Forecasting Unemployment Rates
50
Box 4.4. Projections on Labor Force Participation Rate
52
Box 5.1. The Relationship between Loans and Private Savings
73
BOXES
Box 5.2. The Relationship of Consumer and Commercial Loans with the Current Account
Deficit: Evidence for Turkey and Other Countries
Box 6.1. Public Debt Stock and Budget Deficit Developments: An International Comparison
76
87
Central Bank of the Republic of Turkey
1. Overview
Volatilities in global financial markets continued in the third quarter of 2015. Uncertainties in
global monetary policies and concerns over global growth have been in the forefront in this quarter.
Accordingly, long-term rates remained highly volatile in advanced economies and uncertainty
indicators displayed an increase (Chart 1.1). In the late third quarter and early fourth quarter, volatilities
in financial markets declined slightly on the back of the growing perception about the postponement
of the Fed’s policy rate hike, and also owing to the ECB’s statement for a continued easing in monetary
policy as well as the accommodative steps taken by the People’s Bank of China.
Financial asset prices in emerging economies were also affected notably by this volatility. In the
third quarter, risk premium indicators of emerging economies deteriorated; long-term rates increased;
and domestic currencies depreciated. Moreover, portfolio flows towards these countries exhibited the
weakest outlook and exchange rate volatilities hit the peak of recent years (Chart 1.2). In the early
fourth quarter, financial asset prices saw partial improvement in emerging economies amid the
alleviated volatility in global financial markets. Risk premium indicators and long-term rates registered a
decline and depreciation in domestic currencies was partially reversed. The global economic activity,
which has started to lose pace in 2014, slowed down further through the second quarter of 2015 due to
the deceleration in China and some other emerging economies. Meanwhile, the weak course of the
global economic activity led to a decline in commodity prices in the third quarter.
Chart 1.1.
Chart 1.2.
VIX and US Interest Rate Volatility
Portfolio Flows to Emerging Economies (4-Week Moving
Average, Billion USD) and JPMVXYEM Volatility Index
(Basis Points)
(Percent)
Equity Funds
VIX
45
130
MOVE Index (right axis)
40
110
8
Bond Funds
13
6
JPMVXYEM (right axis)
12
4
11
2
10
0
9
-2
8
-4
7
-6
6
-8
5
-10
4
Source: Bloomberg.
1015
0715
0415
0115
1014
0714
0414
1015
0715
0415
0115
1014
0714
0414
0114
1013
0713
0413
0113
1012
30
0712
10
0114
15
1013
50
0713
20
0413
70
0113
25
1012
90
30
0712
35
Source: EPFR, Bloomberg.
Volatility in global markets had repercussions on the Turkish economy as well and financial
indicators went through fluctuations amid domestic uncertainties. In the third quarter, similar to other
emerging economies, risk premium indicators and long-term rates in Turkey also increased and the
Turkish lira depreciated. However, more recently, all financial asset prices have registered an
improvement. In this period, in addition to implementing a tight monetary policy stance in
consideration of the inflation outlook, the CBRT also took steps to support financial stability and stabilize
the foreign exchange liquidity along the lines of the road map announced in August.
Inflation Report 2015-IV
1
Central Bank of the Republic of Turkey
In the second quarter of 2015, economic activity recorded an increase owing to domestic
demand. Third-quarter indicators signal a mild course in economic activity, while growth composition is
expected to turn in favor of net exports in the second half of the year. Domestic and external
uncertainties pose a downward risk to the economy, whereas the rising demand from the EU countries
supports our exports. Accordingly, it is assessed that domestic demand will remain moderate in the
upcoming period, while external demand will recover and the re-balancing in growth composition will
continue.
In the third quarter of 2015, inflation rose amid developments in food prices and the exchange
rate. Due to the cumulative depreciation in the Turkish lira, annual core goods inflation surged in this
period and the core inflation remained elevated. In addition to the changes in exchange rate and
food prices, wage developments and medium-term inflation expectations will also be effective on the
course of the inflation outlook in the upcoming period. Accordingly, inflation is expected to hover
around current levels for a while due to the exchange rate effects, and then trend downwards.
Conditional on the fiscal policy regarding revenues and expenditures, inflation is projected to reach
the 5-percent target in the medium term.
1.1. Monetary Policy and Financial Conditions
The CBRT released a road map on 18 August 2015 concerning the policies to be implemented
before and during the normalization of global monetary policies. Accordingly, it was announced that
the width of the interest rate corridor will be narrowed and the corridor will be made more symmetric
around the one-week repo rate. During the simplification process, adjustments will be made in the
funding composition to preserve the required degree of tightness in the monetary policy. Moreover,
the road map also addressed policies to be implemented before and during the normalization
regarding Turkish lira liquidity, foreign exchange liquidity and financial stability. Thus, with respect to the
Turkish lira liquidity, quotation on the interest rate on borrowing facilities provided for primary dealers via
repo transactions was terminated and collateral conditions for Turkish lira transactions were simplified
as of 23 September 2015. In addition, it was reminded that foreign exchange deposits can be used as
collaterals against Turkish lira transactions, and new simplified rules were announced regarding the use
of this facility. The aim of these arrangements that were put into effect on 28 September 2015 is to
enhance the efficiency of banks’ liquidity management.
Chart 1.1.1.
Chart 1.1.2.
CBRT Funding
CBRT Rates and BIST Interbank O/N Repo Rates
(2-Week Moving Average, Billion TL)
(Percent)
2
1015
2
0815
4
0615
6
4
0415
6
0215
8
1214
8
1014
10
0814
12
10
0614
12
0414
14
0214
1015
0815
0615
0415
0215
1214
1014
0814
0614
0414
0214
1213
1013
90
80
70
60
50
40
30
20
10
0
-10
1213
100
90
80
70
60
50
40
30
20
10
0
-10
Interest Rate Corridor
CBRT Average Funding Rate (5-day moving average)
BIST O/N Repo Rates (5-day moving average)
1-Week Repo Rate
14
1013
Marginal Funding
O/N Funding
One-Week Repo
1-Month Repo
Reverse Repo at the BIST and Interbank Money Market
100
Net Open Market Operations
Source: BIST, CBRT.
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
In the third quarter of 2015, the CBRT maintained its tight monetary policy stance in order to
contain the adverse effects of exchange rate movements and the volatility in energy and food prices
on inflation and inflation expectations. Accordingly, the average funding rate was increased gradually
in line with the tight liquidity policy. The CBRT continued to provide funding mainly through one-week
repo auctions, while the share of marginal funding was gradually increased (Chart 1.1.1).
Consequently, the average funding rate, which was 8.5 percent in the July Inflation Report, has
recently hovered around 8.75 percent. Moreover, interbank overnight repo rates were formed at the
upper band of the interest rate corridor in the third quarter, as in previous quarters of 2015 (Chart 1.1.2).
In the period ahead, monetary policy decisions will be conditional on the inflation outlook. Inflation
expectations, the pricing behavior and other factors that affect inflation will be monitored closely and
the tight monetary policy stance will be maintained as deemed necessary.
The spread between the 5-year market rates and the BIST overnight rates, which was negative
across the year, neared zero in October 2015 (Chart 1.1.3). The yield curve remained almost flat in this
quarter as well (Chart 1.1.4).
Chart 1.1.3.
Chart 1.1.4.
Money Market Rates (Percent)
Yield Curve (Percent)
1-26 October 2015
2
0
0
-2
-2
-4
-4
10.5
10.0
10.0
9.5
9.5
9.00
2
10.5
10.00
4
8.00
6
4
11.0
7.00
6
11.0
5.00
8
4.00
10
8
3.00
10
11.5
2.00
12
0711
0911
1111
0112
0312
0512
0712
0912
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
0315
0515
0715
0915
12
11.5
1.00
14
0.50
14
29 July 2015-26 October 2015
0.25
5-Year Market Rates-BIST O/N Rates
BIST O/N Rates (5-day moving average)
5-Year Market Rates
Maturity (Year)
Source: Bloomberg, CBRT.
Source: Bloomberg.
Measures were taken to enhance financial stability in line with the road map released in August.
In addition to the changes in required reserves made in the first quarter of 2015, which aimed to foster
maturity extension in foreign exchange non-core liabilities of banks and financing companies, required
reserve ratios were changed for new foreign exchange non-core liabilities to originate after 28 August
2015 with a view to provide incentive for maturities longer than three years. This change has supported
the maturity extension of non-core foreign exchange liabilities, which has been observed since
November 2014. The steady upward trend in maturities longer than three years is deemed particularly
important for financial stability (Chart 1.1.5). Furthermore, the CBRT stated on 29 August 2015 that the
remuneration rate of Turkish lira required reserves would be increased by 50 basis points each in
September, October and December. This arrangement will reduce the intermediation costs of the
banking sector and offer an additional support to core liabilities. In fact, the loans-to-deposits ratio,
which was on an upward trend, has stabilized since the first arrangement in November 2014
(Chart 1.1.6).
Inflation Report 2015-IV
3
Central Bank of the Republic of Turkey
Chart 1.1.5.
Chart 1.1.6.
Maturity of Non-Deposit Liabilities
Loans/Deposits
(Percent)
(Percent)
Anouncement of Required Reserve
Measures in Financial Stability Report
60
55
60
130
55
120
130
Anouncement of Required
Reserve Measures in Financial
Stability Report
120
<1-year
50
50
45
45
100
100
90
90
80
80
70
70
0915
0115
0515
0914
0114
0514
0913
25
0113
0513
25
0912
30
0112
0512
30
0911
35
0114
0214
0314
0414
0514
0614
0714
0814
0914
1014
1114
1214
0115
0215
0315
0415
0515
0615
0715
0815
0915
35
0111
0511
40
0910
>3-year
110
0110
0510
40
110
Source: CBRT.
As part of the steps to be taken during the normalization of global monetary policies, the CBRT
also included some measures in the road map to enhance the flexibility of the FX liquidity
management. In this regard, transaction limits for banks at the CBRT Foreign Exchange and Banknotes
Markets were raised by around 130 percent to 50 billion USD on 1 September 2015. Consequently, the
sum of deposit limits allocated to banks and gold and foreign exchange assets held at the CBRT under
the ROM reached a level that more than meets banks’ external debt payments in the upcoming year.
Moreover, the CBRT announced that due to the increased volatility in global financial markets, as of 19
August 2015, the amount of the foreign exchange sales auction may be increased by up to 70 million
USD above the pre-announced minimum amount. Accordingly, the CBRT has maintained its stabilizing
stance regarding the foreign exchange liquidity.
Annual loan growth remains reasonable on the back of the tight monetary policy stance and
macroprudential measures. Recently, loan growth rates have decelerated further due to heightened
domestic and global uncertainties. The annual growth rate of total loans adjusted for the exchange
rate declined to 15.3 percent at the end of the third quarter. Both consumer and commercial loan
growth rates slowed down notably in this quarter. The annual growth rate of consumer loans declined
to 12.2 percent, while that of commercial loans adjusted for exchange rate fell to 17.8 percent in this
period (Chart 1.1.7). These developments on the growth and composition of loans contribute both to
the re-balancing process and financial stability. The recent course of loan growth reflected by 13-week
moving averages suggests that annualized growth rates dropped and lagged far behind past years’
averages in both consumer and commercial loans (Chart 1.1.8). An analysis of consumer loans by subitems reveals that all loan types decelerated except for automobile loans; while in the commercial
loans front, the slowdown in FX-denominated loans proved more apparent than that in TLdenominated loans. In addition to moderate growth of economic activity, hikes in consumer and
commercial loan rates in the third quarter and tightening in other financial conditions point out that
loan growth may remain low compared to historical averages in the upcoming period as well.
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 1.1.7.
Chart 1.1.8.
Annual Loan Growth
Annualized Loan Growth
(Adjusted for Exchange Rate, Annual Percent Change)
Commercial
(Adjusted for Exchange Rate, 13-Week Moving Average,
Annualized, Percent)
Commercial
Consumer
Consumer
0711
1015
0
0715
0
0115
0415
0
1014
0
0714
10
0114
0414
10
1013
10
0713
10
0113
0413
20
1012
20
0712
20
0412
20
0112
30
1011
30
1015
30
0115
0415
0715
30
1014
40
0114
0414
0714
40
1013
40
0113
0413
0713
40
1012
50
0112
0412
0712
50
1011
50
0711
50
Source: CBRT.
1.2. Macroeconomic Developments and Main Assumptions
Inflation
In the third quarter of 2015, annual consumer inflation posted a quarterly increase of around 0.75
points compared to the previous quarter and rose to 7.95 percent, remaining above projections of the
July Inflation Report (Charts 1.2.1 and 1.2.2). The food prices and exchange rate developments are the
main drivers of this rise in annual inflation. Due to the course of the unprocessed food prices, the
contribution of food prices to inflation increased again in this quarter. Moreover, annual core goods
inflation posted an upsurge owing to the cumulative depreciation in the Turkish lira. Meanwhile,
exchange rate developments had a limited effect on energy prices due to the decline in oil prices.
Chart 1.2.1.
Chart 1.2.2.
Inflation Forecasts and Realizations*
Inflation Forecasts and Realizations Excluding
Unprocessed Food and Tobacco* (Percent)
(Percent)
July 2015 Forecasts
July 2015 Forecasts
Actual Inflation
Actual Inflation
6
6
5
5
5
5
0915
6
0815
6
0715
7
0615
7
0515
7
0415
7
0315
8
0915
8
0815
8
0715
8
0615
9
0515
9
0415
9
0315
9
* Shaded area denotes the 70 percent confidence interval for the forecast.
Source: TURKSTAT, CBRT.
In the third quarter of the year, despite the decline in USD-denominated import prices, cost
pressures on inflation increased due to food prices and exchange rate developments. In this period,
the underlying trend of core inflation indicators posted a slight decline compared to the previous
quarter, yet remained elevated (Chart 1.2.3). Meanwhile, the tight monetary policy stance and the
mild course of domestic demand are considered to have limited the pass-through from exchange
rates to prices compared to similar episodes in the past. Along with the high course of food prices and
Inflation Report 2015-IV
5
Central Bank of the Republic of Turkey
its repercussions on prices of catering services, the rise in non-food cost factors led consumer inflation
excluding food and catering services to increase by around 0.5 points to 6.36 percent in this quarter
(Chart 1.2.4).
Chart 1.2.3.
Chart 1.2.4.
Core Inflation Indicators SCA-H and SCA-I
Food and Non-Food Prices
(Seasonally Adjusted, 3-Month Moving Average, Annualized,
Percent)
Food and Catering Services
SCA-I
2
0815
4
2
0615
4
0415
6
0215
8
6
1214
0915
0615
0315
1214
0914
0614
3
0314
3
1213
5
0913
5
10
8
1014
7
12
10
0814
7
12
0614
9
0414
9
14
0214
11
1213
11
16
14
1013
13
18
CPI (excl. food and catering services)
16
0813
13
18
0613
15
0413
15
0213
SCA-H
(Annual Percent Change)
Source: TURKSTAT, CBRT.
In addition to the exchange rates, which are likely to be driven by domestic and global
uncertainties, the course of food inflation, medium-term inflation expectations and repercussions of
wage developments on inflation will be critical for the inflation outlook over the upcoming period. The
establishment of the Committee on Monitoring and Evaluating Food and Agricultural Product Markets
has been an important structural reform regarding inflation. The measures to be adopted in
coordination with this committee may provide structural and cyclical support to bring food inflation
down. Against this background, inflation is expected to hover around current levels for some time due
to exchange rate effects and start slowing down afterwards. Conditional on the fiscal policy regarding
revenues and expenditures, inflation is projected to reach the 5-percent target in the medium term.
Supply and Demand
According to the GDP data of the second quarter of 2015, economic activity proved more
robust compared to the outlook presented in the July Inflation Report, and the GDP rose by 1.3 and 3.8
percent on a quarterly and annual basis, respectively (Chart 1.2.5). An analysis of seasonally adjusted
national income components on the production side indicates that the industrial value added
provided the highest contribution to the GDP, with other items also contributing positively to the GDP
(Chart 1.2.6). Second-quarter seasonally adjusted data on the expenditures side reveal that final
domestic demand grew due to both consumption and investment expenditures.
In the first half of 2015, domestic demand made a higher contribution to growth than external
demand. Indicators for the third quarter hint at a moderate economic activity, while also suggesting
that the growth composition might change in favor of net exports in the second half. Sales, production
and import indicators regarding industrial production and domestic demand show that final domestic
demand will provide a modest contribution to growth. Additionally, the rising demand from EU
countries is expected to have a positive impact on Turkey’s exports in the upcoming period. Thus,
considering the likely slowdown in import demand based on domestic demand developments, the
contribution of external demand to growth is expected to increase in the second half.
6
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 1.2.5.
Chart 1.2.6.
GDP and Final Domestic Demand
Annual GDP Growth and Contributions from the
Production Side (Percentage Points)
GDP
Final Domestic Demand
34
34
Millions
(Seasonally Adjusted, Billion TL, 1998 Prices)
Net Taxes
Agriculture
Construction
Industry
Services
GDP
5
5
32
32
30
30
3
28
28
2
2
26
26
1
1
24
24
0
0
22
-1
22
4
1234123412341234123412341234123412
4
3
-1
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2007 2008 2009 2010 2011 2012 2013 20142015
2010
2011
2012
2013
2014
2015
Source: TURKSTAT, CBRT.
Thanks to the macroprudential policy framework in effect since 2011, the GDP continues to grow
at a moderate pace while the final domestic demand has seen some recovery following the rebalancing process (Chart 1.2.7). Tightening in financial conditions due to domestic and international
developments poses a downside risk to domestic demand, but this tightening may prove temporary
with waning domestic uncertainty. Moreover, the robust post-crisis employment performance is
expected to support domestic demand via the income channel. In addition, the likely fall in the current
account deficit and the strong public finance generate room for stabilizing economic policies to
dampen the effects of possible shocks. Regarding Turkey’s trading partners; the recovery in the EU is
expected to support Turkey’s exports, while ambiguities about exports to the MENA region, Russia and
Iraq pose downside risks. Uncertainties about the effects of the Fed’s policy decisions and the slowing
Chinese economy on the global economy as well as concerns related to the sustainability of the
European recovery also point to downside risks for external demand. In sum, 2016 is expected to
witness a moderate growth in domestic demand, a recovery in external demand and a continued rebalancing in the growth composition. The current account balance is anticipated to improve further
with the support of the moderate domestic demand, slowdown in consumer loans and favorable
developments in the terms of trade (Chart 1.2.8).
Chart 1.2.7.
Chart 1.2.8.
GDP and Final Domestic Demand Growth
Current Account Balance
(8-Quarter Moving Average)
(12-Month Cumulative, Billion USD)
Current Account Balance
Current Account Balance (excl. gold)
Current Account Balance (excl. energy and gold)
30
30
0.0
-0.5
-1.0
-1.0
-1.5
-1.5
1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: TURKSTAT.
Inflation Report 2015-IV
-30
-50
-50
-70
-70
-90
-90
0815
0.0
-0.5
-30
0215
0.5
0814
1.0
0.5
-10
0214
1.0
-10
0813
1.5
10
0213
1.5
10
0812
2.0
0212
2.5
2.0
0811
3.0
2.5
0211
3.5
3.0
0810
3.5
0210
Final Domestic Demand
0809
GDP
Source: CBRT.
7
Central Bank of the Republic of Turkey
Oil, Import and Food Prices
The fall in international commodity prices, especially energy, continued into the third quarter.
Backed by the slowing economies of China and other emerging countries, this downtrend caused
import prices in Turkey to decline in USD terms. Therefore, assumptions for crude oil prices and USDdenominated import prices were revised downward (Charts 1.2.9 and 1.2.10). On an annual basis, the
average crude oil price assumption was decreased from 59 USD to 54 USD for 2015 and from 63 USD to
54 USD for 2016. Additionally, assumptions for annual percentage changes in average import prices
were revised downwards by 1.9 points for 2015 and 2016. Meanwhile, year-end projections for food
prices were left unchanged, with the food inflation assumption remaining at 8 percent for end-2015
and end-2016.
Chart 1.2.9.
Chart 1.2.10.
Revisions in Oil Prices*
Revisions in Import Prices*
(USD/bbl)
(USD, 2010=100)
July 2015
October 2015
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
Actual
1213
0214
0414
0614
0814
1014
1214
0215
0415
0615
0815
1015
1215
0216
0416
0616
0816
1016
1216
40
40
July 2015
115
115
110
110
105
105
100
100
95
95
90
90
Actual
85
85
1213
0214
0414
0614
0814
1014
1214
0215
0415
0615
0815
1015
1215
0216
0416
0616
0816
1016
1216
October 2015
* Shaded area denotes the forecast horizon.
Source: Bloomberg, CBRT.
Fiscal Policy and Tax Adjustments
The medium-term fiscal policy stance is based on the MTP projections covering the 2016-2018
period. Compared with the previous MTP, the new projections envisage slightly higher revenues and
expenditures as a ratio of the GDP in 2015 and a somewhat slower decline in these ratios in the
following years. Conditional on this outlook, inflation is expected to improve gradually and reach the 5percent target in the medium term.
1.3. Inflation and the Monetary Policy Outlook
Medium-term forecasts are based on the framework that the tight monetary policy stance will
be maintained until there is a significant improvement in the inflation outlook. Moreover, the annual
loan growth rate is envisioned to hover around reasonable levels, also on the back of macroprudential
measures. Accordingly, inflation is expected to be, with 70 percent probability, between 7.4 percent
and 8.4 percent (with a mid-point of 7.9 percent) at end-2015 and between 5.0 percent and 8.0
percent (with a mid-point of 6.5 percent) at end-2016. Inflation is projected to near 5 percent at end2017 and stabilize around 5 percent in the medium term (Chart 1.3.1).
8
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 1.3.1.
Inflation and Output Gap Forecasts
(Percent)
Forecast Range
Uncertainty Band
Year-End Inflation Target
Output Gap
12
12
10
10
Forecast
Horizon
8
8
0918
0618
0318
1217
0917
0617
-4
0317
-4
1216
-2
0916
-2
0616
0
0316
0
1215
2
0915
2
0615
4
0315
4
1214
6
0914
6
* Shaded area denotes the 70 percent confidence interval for the forecast.
Source: CBRT.
The rise in core inflation due to the exchange rate depreciation in the third quarter brought the
end-2015 inflation forecast up by 1.2 points compared to the July Inflation Report forecast. Yet, the
improvement in import prices in the inter-reporting period pulled down the year-end inflation forecast
by 0.2 points. Accordingly, the end-2015 inflation forecast, which was set as 6.9 percent in the July
Inflation Report, was revised upwards by 1 point (Chart 1.3.1).
The end-2016 inflation forecast was revised upward by 1 point to 6.5 percent from 5.5 percent in
the July Inflation Report. The upward revision in the end-2015 inflation forecast and the delayed effects
of exchange rate movements are expected to drive the end-2016 inflation forecast up by 0.6 and 0.8
points, respectively. However, the decline in the assumption for average import prices for 2016 and the
small downward revision to the output gap forecast for 2016 brought the end-2016 inflation forecast
down by 0.3 and 0.1 points, respectively, from the previous reporting period.
1.4. Risks and the Monetary Policy
Loans continue to grow at reasonable levels in annualized terms in response to the tight
monetary policy stance and macroprudential measures. The CBRT highlighted that loan growth has
displayed a notable deceleration due to tighter financial conditions caused by recently elevated
domestic and external uncertainties. Specifically, commercial loans denominated in foreign currency
and consumer loans have lost significant momentum. With respect to the composition of loans,
commercial loans continue to grow faster than consumer loans. This composition not only limits
medium-term inflationary pressures, but also helps to improve the current account balance. In addition
to the moderate economic activity, rising loan rates and the tightening of other financial conditions
also signal that loan growth may remain lower than past years’ averages in the upcoming period.
Final domestic demand was the main driver of growth in the first half of 2015, while external
demand remained weak. Indicators for the third-quarter point to a moderate economic activity,
whereas the composition of growth hints at a slight slowdown in domestic demand and a recovery in
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
exports. The weak consumer confidence and tighter financial conditions curb private consumption
and investment demand. The slowing domestic demand and the changes in real exchange rates drive
imports lower. On the exports front, despite the negative impact of geopolitical developments, the
rising demand from EU members affects Turkey’s exports positively. Against this background, the CBRT
expects the growth composition to shift gradually in favor of net exports in the upcoming period. This
shift is expected to have a positive impact on the current account balance. Moreover, the favorable
developments in the terms of trade and the sluggish course of consumer loans contribute to the
improvement in the current account balance. Accordingly, the improvement in the current account
balance, which became evident with the August figures, is expected to continue.
Energy price developments continue to affect inflation favorably. The negative impact of
cumulative exchange rate developments since early 2015 on the inflation outlook is partly offset by
lower oil prices. Food prices, on the other hand, remain volatile mainly due to unprocessed food prices,
which pose both upside and downside risks to the year-end inflation forecast. The cumulative Turkish lira
depreciation caused the annual core goods inflation to rise and the core inflation to deteriorate
slightly. However, the tight monetary policy stance and the moderate domestic demand cause the
pass-through from the exchange rate to prices to remain limited compared to similar periods in
previous years. Accordingly, considering the impact of the uncertainty in domestic and global markets
on inflation expectations and taking into account the volatility in energy and food prices, the CBRT
decided to maintain the tight liquidity stance as long as deemed necessary. Future monetary policy
decisions will be conditional on the inflation outlook. Taking inflation expectations, pricing behavior and
the course of other factors affecting inflation into consideration, the tight monetary policy stance will
be maintained.
Uncertainties surrounding global monetary policies and concerns over global growth cause
financial markets to remain volatile. Thus, portfolio flows to emerging economies and risk indicators
follow a highly volatile pattern. The measures announced in the CBRT’s road map, which will be
followed during the normalization of global monetary policies, strengthen the resilience of the
economy against global shocks. The current monetary policy stance remains tight against the inflation
outlook, stabilizing for the FX liquidity, and supportive of financial stability.
Should the decline in loan growth rates become permanent and exchange rates continue to
face upward pressure over the upcoming period, the CBRT will preserve the tight monetary policy
stance, and also take measures to support the Turkish lira and loan growth by easing the conditions for
the use of foreign currency denominated collateral.
Developments in the fiscal policy and tax adjustments are monitored closely with regard to their
effects on the inflation outlook. The baseline monetary policy stance is formulated under the
assumption that fiscal discipline will be maintained and there will be no unanticipated hikes in
administered prices. A revision of the monetary policy stance may be considered, should the fiscal
policy deviate significantly from this framework, and consequently have an adverse effect on the
medium-term inflation outlook.
Sustained fiscal discipline has become a fundamental element in reducing the sensitivity of the
Turkish economy against external shocks in recent years. In the current environment of highly uncertain
10
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
global markets, the value added from maintaining and further advancing these achievements is
significant. Any measure that would ensure the sustainability of the fiscal discipline and reduce the
savings deficit will support macroeconomic stability and contribute positively to social welfare by
keeping interest rates of long-term government securities at low levels.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
2. International Economic Developments
In the second quarter of 2015, global economic activity remained weak due to the sluggish
growth of emerging economies. The ongoing deceleration in the Chinese economy and its
implications for the commodity market and global trade continued to dampen the growth outlook in
emerging economies. In fact, the growth forecasts for commodity-exporting emerging economies
which have close trade ties with China have been revised downward recently. On the advanced
economies front, the moderate growth continued into the second quarter, especially in the US and the
Euro area. Yet, lower commodity prices weighed on commodity-exporting advanced economies as
well. China’s growth performance appears to be one of the major downside risks to the global
economic activity for the upcoming period. Thus, in case the Chinese economy continues to slow
down, resulting in even more slide in China’s imports, commodity prices may slump further and global
trade may remain subdued, causing the global economic outlook to remain sluggish for some time.
The fall in commodity prices, especially energy, persisted into the third quarter, which was mostly
driven by stagnant Chinese economy and the weak course of demand in emerging economies. These
effects are expected to pull commodity prices down further in coming months. Plunging oil and
commodity prices continue to repress inflation rates across advanced economies. Additionally,
exchange rate developments in advanced economies also pose downward pressure on inflation rates.
On the other hand, the slump in commodity prices triggers capital outflows from commodity-exporting
emerging economies, driving exchange rates and thus inflation rates higher. Assuming that the Chinese
economy continues to grow mildly and the Fed decides not to hold off rate hikes for a long time, the
divergence between inflation rates in advanced and emerging economies may continue into the
upcoming period.
The third quarter was marked by risk aversion due to the Chinese slowdown, the weak growth in
emerging economies and the expectations of a Fed rate hike; while emerging economies saw
increasing capital outflows during the same period. Despite downside risks to their growth outlook, most
emerging market central banks kept policy rates constant amid weaker capital flows and uncertainties
over global monetary policies. The relatively tepid readings on the recovery of the US economic
activity and labor market and the likely spillovers from the global slowdown to the US economy signal
that the first rate hike, which was supposed to happen before the end of the year, will take place in the
first quarter of 2016 at the earliest. Although the delay in the Fed rate hike might spur capital flows into
emerging economies, the weak growth outlook for emerging economies remains the key downside risk
to capital inflows.
2.1. Global Growth
Global economic activity continued to decelerate through the second quarter mostly due to
the ongoing sluggish growth in emerging economies (Chart 2.1.1). The Chinese economy slowed
further, whereas Russian and Brazilian contraction deepened. In this period, the annual growth rate of
emerging economies turned negative in Eastern Europe and approached zero in Latin America
(Chart 2.1.2). On the other hand, advanced economies, especially the US and the Euro area,
displayed a positive growth performance, recording a quarter-on-quarter increase in the second
quarter (Chart 2.1.1).
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
Chart 2.1.1.
Chart 2.1.2.
Global Growth Rates*
Regional Growth Rates*
(Annual Percent Change)
(Annual Percent Change)
Latin America
Asia
Eastern Europe
Emerging Economies
Advanced Economies
10
10
Global GDP
6
6
2
2
-2
-2
-6
1234123412341234123412341234123412
2007 2008 2009 2010 2011 2012 2013 2014 15
12
9
9
6
6
3
3
0
0
-3
-3
-6
-6
-9
-6
-9
23412341234123412341234123412
2008 2009
* Weighted by each country’s share in global GDP.
Source: Bloomberg, CBRT.
12
2010
2011
2012
2013
2014 15
* Weighted by each country’s share in regional GDP.
Source: Bloomberg, CBRT.
The global PMI data of the third quarter signal a persistent global economic slowdown
(Chart 2.1.3). The readings on the US and Euro area manufacturing industry PMI suggest that both
economies continued to experience a positive growth performance in the third quarter but at a
decelerating pace (Chart 2.1.4). Specifically, the worse-than-expected US non-farm employment data
of August and September and the resulting year-on-year drop in job openings reflect the slowing US
growth. Meanwhile, the Japanese manufacturing industry PMI turned favorable in the third quarter
(Chart 2.1.4). Both this PMI outlook and the base effect indicate that Japan might see a positive
annual growth rate in the third quarter.
The emerging markets PMI for manufacturing and services continued to decline in the third
quarter (Chart 2.1.5). The manufacturing PMI data for China, Poland and Mexico were particularly
down quarter-on-quarter. Moreover, financial markets became highly volatile amid worries about
China while emerging economies faced capital outflows. Therefore, the slowing economic activity
across emerging economies is expected to continue into the third quarter of 2015.
Chart 2.1.3.
Chart 2.1.4.
Global PMI
Manufacturing Industry PMI
Services
58
58
Manufacturing
Euro Area
USA
Japan
60
56
0715
0315
1114
0714
0314
1113
0713
0313
1112
0712
48
0312
48
1111
50
0711
50
0311
52
1110
52
0710
54
0310
54
55
55
50
50
45
45
40
40
0310
0710
1110
0311
0711
1111
0312
0712
1112
0313
0713
1113
0314
0714
1114
0315
0715
56
60
Source: Markit.
14
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
In sum, the global economy might continue to slow in the third quarter due to emerging
economies. The October Consensus Forecasts bulletin shows that growth forecasts for 2015 hardly
changed in the inter-reporting period (Table 2.1.1). Yet, on the advanced economies front, growth
forecasts for 2015 were revised upward for the US and downward for Japan. On the emerging
economies side, year-end growth forecasts for both 2015 and 2016 were revised downwards,
particularly for Latin America (Table 2.1.1). Accordingly, the annual growth rate of the export-weighted
global production index revised by October forecasts declined from the previous reporting period,
which signals further weakness in Turkey’s external demand in the upcoming period (Chart 2.1.6).
Table 2.1.1.
Growth Forecasts for end-2015 and end-2016
(Annual Percent Change)
July
Global
Advanced Economies
USA
Euro Area
Germany
France
Italy
Spain
Japan
UK
Emerging Economies
Asia-Pacific
China
India
Latin America
Brazil
Eastern Europe
Russia
October
2015
2.6
2016
3.1
2015
2.5
2016
2.9
2.4
1.5
1.9
1.2
0.7
3.0
1.0
2.5
2.8
1.8
1.9
1.6
1.2
2.6
1.7
2.4
2.5
1.5
1.8
1.1
0.8
3.2
0.6
2.5
2.6
1.7
1.9
1.5
1.3
2.7
1.3
2.4
5.9
6.8
7.7
0.0
-1.6
0.0
-3.5
6.0
6.7
8.0
1.5
0.6
2.1
0.4
5.8
6.8
7.5
-0.7
-2.8
-0.1
-3.9
5.7
6.5
7.8
0.5
-1.0
1.7
-0.1
Source: Consensus Forecasts.
Chart 2.1.5.
Chart 2.1.6.
Emerging Markets PMI
Export-Weighted Global Production Index*
(Annual Percent Change)
Services
58
58
Manufacturing
56
56
54
54
52
52
6
July Inflation Report Forecast at 1.89
4
4
2
2
0
-2
-2
-4
0715
0315
1114
0714
0314
1113
0713
0313
1112
0712
0312
1111
0711
-6
0311
48
1110
48
0710
-4
0310
50
Inflation Report 2015-IV
0
October Inflation Report Forecast at 1.87
50
Source: Markit.
6
-6
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
2008
2009
2010
2011
2012
2013
2014 2015
* Weighted by each country’s share in Turkey’s exports.
Source: Bloomberg, CBRT.
15
Central Bank of the Republic of Turkey
2.2. Commodity Prices and Global Inflation
In the third quarter of 2015, the headline commodity price index dropped by 18.5 percent from
the end of the previous quarter. In this period, precious metal prices remained horizontal while energy
prices, industrial metal prices and agricultural prices slumped by 23.2, 9.5 and 11 percent, respectively,
largely due to shortage of demand from emerging economies, particularly China. Although strikingly
low commodity prices call for a correction in commodity supply, the rather slow correction, especially
in the oil market, adds to the downside pressure on commodity prices (Chart 2.2.1).
Chart 2.2.1.
Chart 2.2.2.
S&P Goldman Sachs Commodity Price Indices
Crude Oil (Brent) Prices*
(January 2014=100)
(USD/bbl)
Source: Bloomberg.
60
60
40
40
0716
80
0116
80
0715
40
100
0115
40
100
0714
60
120
0114
60
120
0713
80
1015
80
0715
100
0415
100
0115
120
1014
120
0714
140
0414
140
0114
24 July 2015
23 October 2015
Spot
Energy
Precious Metals
0113
Headline
Industrial Metals
Agriculture
* 24 July 2015 and 23 October 2015 denote the arithmetic mean of the
prices quoted at futures contracts during 1-24 July 2015 and 1-23
October 2015, respectively.
Source: Bloomberg.
Oil prices plummeted in the third quarter. With low oil prices beginning to have more evident
negative implications on oil-exporting countries, China’s expansionary economic policy and mounting
concerns about the sustainability of OPEC’s low price policy appear to have minimal impact on oil
prices. Similarly, rising geopolitical risks in the Middle East affected oil prices only slightly. Thus,
December 2015 contracts for Brent crude oil, which were traded at 59 USD on average in July, have
been trading at 49.9 USD on average as of 23 October (Chart 2.2.2). Whether OPEC and non-OPEC oil
exporters will announce a policy change to reduce oil supply and how geopolitical risks will unfold are
among the main factors to shape oil prices in the upcoming period. While the US shale oil industry faces
a contraction, Iran’s likely return to the international oil market may balance the supply. Against this
background, the global supply glut will support the current level of oil prices in the short term.
In the inter-reporting period, inflation rates were down across advanced and emerging
economies amid falling oil prices. Core inflation rates, on the other hand, edged up in both country
groups (Charts 2.2.3 and 2.2.4). Meanwhile, inflation soared in some commodity-exporting economies
such as Russia, Brazil and Argentina.
16
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Central Bank of the Republic of Turkey
Chart 2.2.3.
Chart 2.2.4.
CPI Inflation in Advanced and Emerging Economies
Core Inflation in Advanced and Emerging Economies
(Annual Percent Change)
(Annual Percent Change)
Emerging Economies
Emerging Economies
8
5
6
6
4
4
4
4
3
3
2
2
2
2
0
0
1
1
-2
-2
0
0
0315
0914
0314
0913
0313
0312
0911
0311
0910
0315
0914
0314
0913
0313
0912
0312
0911
0311
0910
Source: Bloomberg, CBRT.
5
Advanced Economies
Advanced Economies
0912
8
Source: Bloomberg, DataStream, CBRT.
Global inflation expectations for end-2015 and end-2016 were revised upwards for emerging
economies compared to the previous reporting period. Advanced economies, on the other hand, saw
a modest downward revision. The rising inflation expectations for emerging economies were mostly
fueled by Latin America and Eastern Europe. In particular, inflation expectations worsened further in
Brazil and Russia (Table 2.2.1).
Falling prices of oil and other commodities continue to dampen inflation rates across advanced
economies. For commodity-exporting emerging economies on the other hand, this downtrend drives
inflation higher by worsening expectations. Meanwhile, exchange rate developments reinforce the
course of inflation in related country groups. More specifically, the appreciating USD curbs the US
inflation while the depreciating currencies of emerging economies, such as Russia and Brazil, push
inflation rates higher in these countries. Assuming that the economic growth continues to slow down
across the globe and especially in China, a major commodity importer, and the Fed starts to hike
policy rates soon, the current inflation outlook may remain unchanged – repressed in advanced
economies and elevated in emerging economies – in the short term.
Table 2.2.1.
Inflation Forecasts for end-2015 and end-2016
(Annual Percent Change)
July
Global
Advanced Economies
USA
Euro Area
Germany
France
Italy
Spain
Greece
Japan
UK
Emerging Economies
Asia-Pacific
China
India
Latin America
Brazil*
Eastern Europe
Russia
October
2015
2.6
2016
3.1
2015
3.2
2016
3.6
0.2
0.2
0.6
0.3
0.2
-0.2
-1.3
0.2
0.8
2.2
1.3
1.6
1.2
1.1
1.1
0.3
1.6
1.1
0.2
0.1
0.3
0.1
0.1
-0.4
-1.3
0.1
0.8
1.8
1.1
1.4
1.0
0.9
0.9
2.1
1.4
0.8
2.0
1.4
5.4
14.5
8.4
8.0
12.0
2.5
1.9
5.6
12.0
5.5
5.6
6.8
2.0
1.6
5.0
24.6
9.7
8.4
13.1
2.6
2.1
5.4
25.1
6.1
5.8
7.2
* December to December.
Source: Consensus Forecasts.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
2.3. Financial Conditions, Risk Indicators and Capital Flows
Following the ongoing global economic slowdown in the third quarter, concerns about the
Chinese economy and the approaching date of a likely Fed rate hike caused the global risk appetite
to decline sharply (Chart 2.3.1). However, owing to the end-August policy rate cut of the People's Bank
of China and the Fed’s subsequent hints for delaying the first rate hike further, investors’ deteriorating
appetite for risk was reversed (Chart 2.3.2). With rising risk aversion and the recent worse-than-expected
non-farm employment in the US as well as fears of possible spillovers from the global economic
slowdown into the US economy, financial markets’ expectations for the Fed's first policy rate hike were
pushed to 2016.
Chart 2.3.1.
Chart 2.3.2.
Exchange Rate Volatility
Policy Rate Projections of the FOMC Members
(Basis Points)
(Median, Percent)
VXY Volatility Index
17 September 2015
EM-VXY Volatility Index
17 June 2015
19 March 2014
3.0
2.5
2.5
9
9
2.0
2.0
8
8
1.5
1.5
7
7
1.0
1.0
6
6
0.5
0.5
5
5
0915
3.0
10
0715
11
10
0515
11
0315
3.5
0115
3.5
1114
12
0914
12
0714
4.0
0514
4.0
0314
13
0114
13
0.0
0.0
2015
Source: Bloomberg, JP Morgan.
2016
2017
Longer-Term
Source: Fed.
Amid a growing market sentiment that the Fed would delay the rate hike as well as
expectations of continued monetary easing by other major central banks, long-term returns in
advanced economies began to fall again in July (Chart 2.3.3). Yet, downturn in the stock markets of
both advanced and emerging economies, which had been accelerating since August, was replaced
by a rebound in October.
Chart 2.3.3.
Chart 2.3.4.
10-Year Treasury Bond Yields
Weekly Fund Flows to Emerging Economies
(Percent)
(Billion USD)
Germany
USA
UK
Japan
3.5
Equity Funds
3.5
Bond Funds
15
150
52-Week Cumulative Fund Flow (right axis)
3.0
10
2.5
2.5
5
2.0
2.0
0
1.5
1.5
-5
1.0
1.0
-10
0.5
0.5
-15
-100
0.0
0.0
-20
-150
3.0
100
50
Source: Bloomberg.
18
0915
0715
0515
0115
0315
1114
0914
0714
0514
0114
0314
1113
0913
0713
0513
-50
0113
0313
0915
0515
0115
0914
0514
0114
0913
0513
0113
0
Source: EPFR.
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
The recent rapid decline in the global risk appetite worsened the risk sentiment toward
emerging economies, causing emerging market risk premiums to rise markedly in Asia-Pacific and Latin
America until the end of September (Chart 5.1.1). This increase in risk premiums ended as of October
after lowered expectations for a Fed rate hike. Accordingly, international investors grew more risk
averse in August and September, and stock and bond markets in emerging economies saw sizeable
outflows in the third quarter (Chart 2.3.4). Despite losing some momentum after September’s FOMC
meeting, these outflows continued until October. Capital flows are expected to be heavily influenced
by the Fed’s policy decisions and hints in the upcoming period. Signals of a further delay in the muchanticipated Fed rate hike seem to drive capital flows into emerging economies but the ongoing
uncertainty about the timing of this policy rate increase and the weak growth outlook for emerging
economies, especially China, contribute to the downside risks to emerging market capital inflows.
2.4. Global Monetary Policy
In the third quarter of 2015, global monetary policy decisions generally reflected unchanged
policy rates. On the advanced economies front, after the Bank of Canada and the Sveriges Riksbank
opted for a policy rate cut in July, the Reserve Bank of New Zealand and the Norges Bank lowered their
policy rates by 25 basis points each in September (Chart 2.4.1). Emerging economies displayed a similar
pattern, with the Magyar Nemzeti Bank and the Central Bank of Brazil deciding to keep policy rates
constant at their September meetings after a prolonged stable cut in Hungary and a steady increase
in Brazil. However, the People’s Bank of China lowered its policy rate by 25 basis points in August and
the Reserve Bank of India opted for a rate cut of 50 basis points in September, whereas the Central
Reserve Bank of Peru and Central Bank of Colombia hiked their policy rates by 25 basis points each in
September and the Central Bank of Chile favored a 25 basis point rate increase in October
(Chart 2.4.2).
Chart 2.4.1.
Chart 2.4.2.
Policy Rate Changes in Advanced Economies
between January 2014 and October 2015* (Basis Points)
Policy Rate Changes in Emerging Economies between
January 2014 and October 2015* (Basis Points)
October 2015
August 2015
2015Q2
2014
100
75
September 2015
July 2015
2015Q1
100
75
1000
September 2015
July 2015
2015Q1
1250
1000
50
500
500
250
250
0
0
Mexico
Romania
Turkey
-750
South Africa
-500
-750
Russia
-500
Hungary
-250
Indonesia
-250
Poland
-125
Canada
-125
Czech Republic
-100
Euro Area
-100
Norway
-75
Australia
-75
Korea
-50
Sweden
-50
Israel
-25
Colombia
0
Peru
0
-25
750
Thailand
25
Chile
25
750
Brazil
50
October 2015
August 2015
2015Q2
2014
1250
* As of 23 October 2015.
Source: Bloomberg, CBRT.
The fact that the Fed’s September meeting delivered no rate hike had major implications for
global monetary policy. The post-meeting statement of the FOMC underlined that economic
conditions had yet to warrant a policy rate increase but indicated that a policy rate hike would be
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
likely over the remainder of the year. The timing and pace of a Fed rate hike remains crucial to
financial markets. According to the forecasts announced in the September statement, the FOMC
members lowered their expectations for the federal funds rate at all maturities; yet the expectation for
a one-off rate hike in 2015 is still valid, albeit less strong (Chart 2.3.2). In conclusion, market expectations
for the federal funds rate were revised significantly downward compared to the previous reporting
period, with forecasts for the first rate hike now being shifted into the first quarter of 2016 (Chart 2.4.3).
Chart 2.4.3.
US Federal Funds Futures
(Percent)
24 July 2015
2.0
2.0
9 October 2015
0618
0418
0218
1217
1017
0817
0617
0.0
0417
0.2
0.0
0217
0.4
0.2
1216
0.6
0.4
1016
0.8
0.6
0816
1.0
0.8
0616
1.2
1.0
0416
1.4
1.2
0216
1.6
1.4
1215
1.8
1.6
1015
1.8
Maturity
Source: Bloomberg.
20
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Central Bank of the Republic of Turkey
3. Inflation Developments
In the third quarter of 2015, consumer inflation increased by approximately 0.75 points
compared to the previous quarter and reached 7.95 percent due to the rise in food and core goods
prices. Following the correction in unprocessed food prices in the second quarter, the contribution of
food prices to inflation increased again in this quarter. Moreover, annual core goods inflation rose by 2
points as the Turkish lira continued to depreciate in the third quarter from the first half of the year.
Despite the depreciation in the Turkish lira, the plunge in oil prices lowered the annual energy inflation
in the third quarter. Services inflation fell in this period due mostly to the base effect in transport and
communication services, whereas inflation in food prices and services categories sensitive to exchange
rates saw rising figures. Thus, the underlying trend of core inflation indicators recorded a slight quarteron-quarter decline, yet still remained elevated.
In the third quarter of 2015, prices increased faster than historical averages in all subcategories
excluding energy (Chart 3.1). The course of food prices was mainly determined by unprocessed food
prices, particularly fresh fruits and red meat. The contribution of core goods and food prices to inflation
crept up by 0.4 and 0.3 points, respectively, whereas that of the energy prices fell by 0.1 points on a
quarterly basis (Chart 3.2). In accordance with the prices of core goods and services, core inflation
indicators also increased higher than past averages in this period.
Chart 3.1.
Chart 3.2.
CPI by Subcategories
Contributions to Annual CPI
(Third-Quarter, Quarterly Percent Change)
2007-2014 Average
(Percentage Points)
2015
Core Goods*
4
4
3
3
2
2
1
1
0
Services
Tobacco and Gold**
Energy
Food
12
12
10
10
8
8
0
6
6
-1
-1
4
4
-2
-2
2
2
-3
-3
-4
-4
0
Food
Energy Tobacco Core Services
and Goods*
Gold**
CPI
0
I
III
2008
I
III
2009
I
III
2010
I
III
2011
I
III
2012
I
III
2013
I
III
I
III
2014 2015
* Tobacco and Gold: Alcoholic beverages, tobacco and gold.
** Core Goods: Goods excluding food, energy, alcoholic beverages, tobacco and gold.
Source: TURKSTAT, CBRT.
In sum, annual inflation increased in the third quarter due to ongoing increases in food prices as
well as the depreciation of the Turkish lira. In spite of the fall in USD-denominated import prices,
especially oil, exchange rate movements pushed the core inflation upwards. However, the passthrough of the depreciation in the Turkish lira to non-energy prices is assumed to be limited thanks to
the mild outlook in aggregate demand conditions. In the upcoming period, the effects of domestic
and global uncertainties on exchange rate movements as well as the course of food prices are the
Inflation Report 2015-IV
21
Central Bank of the Republic of Turkey
leading risks to the inflation outlook. Moreover, the deterioration in medium-term inflation expectations
constitutes a significant risk factor to categories like services, which present inflationary inertia.
3.1. Core Inflation Outlook
Annual core goods inflation rose by 1.98 points to 7.94 percent in the third quarter (Table 3.1.1
and Chart 3.1.1). This was owed to annual inflation in durable goods, which increased by around 5
points to 9.89 percent due to the exchange rate effects. As for other categories in core goods, annual
inflation in clothing declined in this period, while inflation in core goods excluding clothing and durable
goods saw a slight rise (Chart 3.1.2).
In the third quarter, the Turkish lira depreciated against the USD and the euro by around 11
percent, and the effect of exchange rate movements on core goods prices grew more apparent. The
modest course of demand conditions limited the exchange rate pass-through in this period, yet the
cumulative depreciation of the Turkish lira weighed on inflation pressures on durable goods. In fact,
monthly price increases in durable goods were high in July and even higher in September, especially in
home appliances and automobiles.
Chart 3.1.1.
Prices of Core Goods and Services
(Annual Percent Change)
Core Goods
Services
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
1208
0309
0609
0909
1209
0310
0610
0910
1210
0311
0611
0911
1211
0312
0612
0912
1212
0313
0613
0913
1213
0314
0614
0914
1214
0315
0615
0915
14
Source: TURKSTAT, CBRT.
In core goods excluding clothing and durable goods, where exchange rate depreciation is
observed to have a lagged effect, prices exhibited a surge in September as opposed to the mild
course in July and August. Contrary to strong exchange-rate-driven effects in these categories,
clothing prices remained modest in the third quarter. In line with the mild course of the aggregate
demand, clothing prices saw higher-than-average decline in seasonal sales, which partially limited the
deterioration in the core inflation outlook.
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 3.1.2.
Chart 3.1.3.
Core Goods Prices
Core Goods Prices
(Annual Percent Change)
Core Goods (excl. durable goods and clothing)
(Seasonally Adjusted, 3-Month Moving Average, Annualized)
Durable Goods (excl. gold)
Clothing
0915
0315
0914
0314
0913
0915
0313
-10
0912
-10
0312
-10
0911
-10
0311
-5
0910
-5
0310
-5
0909
-5
0309
0
0908
0
0308
0
0907
0
0315
5
0914
5
0314
5
0913
5
0313
10
0912
10
0312
10
0911
10
0311
15
0910
15
0310
15
0909
15
0309
20
0908
20
0308
20
0907
20
Source: TURKSTAT, CBRT.
Against this background, the contribution of core goods to consumer inflation grew by 0.45
points to 2.09 points in the third quarter (Chart 3.2). The underlying trend of core goods inflation
continued to be high in this period (Chart 3.1.3). In September, seasonally adjusted data signaled a
notable increase especially in prices of core goods excluding clothing. Also, the depreciation of the
Turkish lira is projected to have further adverse effects on core goods inflation in the last quarter.
Table 3.1.1.
Prices of Goods and Services*
(Quarterly and Annual Percent Change)
2014
CPI
1. Goods
Energy
Food and Non-Alcoholic Beverages
Unprocessed Food
Processed Food
Core Goods
Clothing and Footwear
Durable Goods (excl. gold)
Furniture
Electrical and Non-Electrical Appliances
Automobile
Other Durable Goods
Core Goods (excl. clothing and durable goods)
Alcoholic Beverages, Tobacco and Gold
2. Services
Rent
Restaurants and Hotels
Transport
Communication
Other
2015
III
IV
Annual
I
II
III
0.69
-0.30
0.11
1.50
0.02
2.82
-2.39
-10.50
-0.08
-1.11
0.69
-0.10
0.26
1.82
0.45
3.05
2.25
3.95
4.05
2.48
2.67
1.63
1.99
-0.74
2.90
3.53
2.36
2.98
10.38
-0.29
1.56
-0.31
-1.19
1.07
1.38
0.00
0.81
1.78
2.02
-0.38
0.14
0.21
8.17
7.99
-1.54
12.73
12.24
13.16
8.89
8.40
8.70
7.73
1.64
13.72
7.02
9.57
7.73
8.59
7.34
13.98
7.76
2.50
8.64
3.03
3.34
1.96
8.82
16.40
2.30
-1.10
-12.43
3.91
3.55
2.44
5.14
1.38
1.78
4.49
2.32
1.47
3.42
0.10
2.26
2.95
1.68
1.37
1.44
-3.85
-9.27
1.45
6.60
22.37
1.43
1.24
0.98
1.62
3.19
2.16
0.61
2.40
1.77
3.59
2.06
-0.11
3.00
1.39
0.81
-0.70
2.85
3.56
2.22
-0.57
-11.81
4.57
3.20
4.00
5.60
2.69
2.25
2.32
2.76
2.38
4.29
1.41
1.53
2.87
* Other services exclude rent, restaurants and hotels, transport and communication.
Source: TURKSTAT, CBRT.
Annual services inflation declined by 0.31 points quarter-on-quarter to 8.54 percent in the third
quarter (Chart 3.1.1). This was led by communication services and transport services, the annual
inflation of which lost pace due to the falling international oil prices. Meanwhile, annual inflation in
restaurants and hotels as well as rent and other services increased as the prices of these subcategories
Inflation Report 2015-IV
23
Central Bank of the Republic of Turkey
recorded historical highs (Charts 3.1.4 and 3.1.5). Cumulative increases in food prices remained
influential in restaurants and hotels, which mainly determine the high course in the services inflation.
Chart 3.1.4.
Chart 3.1.5.
Prices of Services by Subcategories*
Prices of Services by Subcategories*
(Third-Quarter, Quarterly Percent Change)
(Annual Percent Change)
2007-2014 Average
5
Other
Communication
Transport
Rent
Restaurants and Hotels
20
2015
3
3
2
2
1
1
0
0
15
20
15
10
10
5
5
0
0
-5
-5
0915
0315
0914
0314
0913
0313
0912
0312
0311
0910
0310
0909
0309
0908
Other
Transport
Restaurants-Hotels
Services
Communication
4
Rent
4
0911
5
* Other services exclude rent, restaurants and hotels, transport and communication.
Source: TURKSTAT, CBRT.
Cost pressures continue to dominate prices of services. The elevated annual food inflation
excluding fresh fruits and vegetables caused sustained hikes in catering services and annual inflation
hit 14.8 percent (Chart 3.1.6). The cumulative impact of the depreciation in the Turkish lira remained
influential in prices of other services (Chart 3.1.7). In addition to cost factors, the prolonged rise in
consumer inflation and the deteriorated medium-term expectations have an adverse effect on the
services inflation.
Chart 3.1.6.
Chart 3.1.7.
Prices of Catering Services and Food
Prices of Other Services and the Currency Basket*
(Annual Percent Change)
16
(Annual Percent Change)
Other Services
Currency Basket (right axis)
12
14
10
12
8
10
6
8
4
6
2
Food (excl. fresh fruits and vegetables)
Catering Services (right axis)
16
30
25
14
20
12
10
15
10
8
5
6
0
4
-5
Source: TURKSTAT, CBRT.
0915
0315
0914
0314
0913
0313
0912
0312
0911
0311
0910
0310
-10
0909
0915
0315
0914
0314
0913
0313
0912
0312
0911
0311
0910
0310
0909
2
* Other services exclude rent, restaurants and hotels, transport and
communication.
Source: TURKSTAT, CBRT.
In the third quarter, the underlying trend and the diffusion index for services prices remained
high amid the persisting cost pressures (Charts 3.1.8 and 3.1.9).
24
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 3.1.8.
Chart 3.1.9.
Prices of Services
Diffusion Index for Prices of Services*
(Seasonally Adjusted, 3-Month Moving Average, Annualized)
(Seasonally Adjusted, 3-Month Moving Average)
0915
0315
0915
0914
0.2
0314
0.2
0913
0.3
0313
0.3
0912
0.4
0312
0.4
0911
0.5
0311
0.5
0910
0.6
0310
0.6
0909
0.7
0309
-2
0.7
0908
-2
0315
0
0914
2
0
0314
2
0913
4
0313
6
4
0912
6
0312
8
0911
10
8
0311
10
0910
12
0310
12
0909
14
0309
16
14
0908
16
* Diffusion index is calculated as the ratio of the number of items with
increasing prices minus the number of items with decreasing prices to total
number of items within a given month.
Source: TURKSTAT, CBRT.
Source: TURKSTAT, CBRT.
In line with the outlook for prices of core goods and services, annual inflation in SCA-H and SCA-I
climbed to 8.26 and 8.23 percent, respectively, in the third quarter (Chart 3.1.10). Despite the slight
quarter-on-quarter improvement, the underlying trend of core inflation indicators remained high in the
third quarter (Chart 3.1.11).
Chart 3.1.10.
Chart 3.1.11.
Core Inflation Indicators
Core Inflation Indicators
(Annual Percent Change)
(Seasonally Adjusted, 3-Month Moving Average,
Annualized, Percent)
SCA-I
12
Source: TURKSTAT.
0915
0315
0914
0314
0913
0
0313
0
0912
2
0312
2
0911
4
0910
0311
4
0310
6
0909
6
0309
8
0908
8
0308
10
0907
10
20
SCA-H
SCA-I
20
15
15
10
10
5
5
0
0
-5
-5
0907
0308
0908
0309
0909
0310
0910
0311
0911
0312
0912
0313
0913
0314
0914
0315
0915
SCA-H
12
Source: TURKSTAT, CBRT.
As of the end of the quarter, the likelihood for prices to rise remained virtually unchanged
quarter-on-quarter as implied by the diffusion indices (Chart 3.1.12). Yet, the diffusion indices recorded
a limited rise in September, unlike the preceding two months. SATRIM, one of the alternative core
inflation indices monitored by the CBRT, remained relatively flat; whereas FCORE, which is a better
indicator of the effects of food prices on inflation, posted a quarter-on-quarter increase (Chart 3.1.13).
In sum, exchange rates and other cost factors had further adverse effects in the third quarter,
while favorable import prices and the mild course of aggregate demand continued to curb cost
pressures, albeit partially. Despite posting a quarter-on-quarter recovery, the underlying indicators are
still well above the target-consistent levels.
Inflation Report 2015-IV
25
Central Bank of the Republic of Turkey
Chart 3.1.12.
Chart 3.1.13.
Diffusion Indices for CPI and SCA-H
Core Inflation Indicators SATRIM and FCORE*
Source: TURKSTAT, CBRT.
-1
-1
0915
1
0315
3
1
0914
3
0314
0.0
5
0913
0.0
7
5
0313
0.1
7
0912
0.1
0912
0313
0913
0314
0914
0315
0915
0.2
0907
0308
0908
0309
0909
0310
0910
0311
0911
0312
0.2
9
0312
0.3
11
9
0911
0.3
13
0311
0.4
15
11
0910
0.4
SATRIM
13
0310
0.5
FCORE
15
0909
0.6
0309
0.5
(Annualized, 3-Month Moving Average)
0908
0.6
SCA-H
0308
CPI
0907
(Seasonally Adjusted, 3-Month Moving Average)
* For further details, see Box 3.2, Inflation Report 2011-I.
Source: CBRT.
3.2. Food, Energy and Alcohol-Tobacco Prices
Food inflation headed upwards in the third quarter after a significant downward correction in
the second quarter. Annual food inflation, which receded to 9.28 percent in June, climbed to 10.73
percent at the end of the third quarter, remaining above the previous Report’s assumptions
(Chart 3.2.1).
The rise in annual food inflation was attributed to unprocessed food prices (Chart 3.2.2). On
account of the increased supply of fruits and vegetables, seasonally adjusted unprocessed food prices
witnessed a correction in May and June. Nevertheless, this was reversed in the third quarter mainly due
to soaring fruit prices. Moreover, red meat prices continued to trend upwards in this period due to the
subdued supply in livestock. In fact, red meat prices surged by 5.53 percent in this quarter, while
registering a 21.58 percent increase in year-on-year terms (Chart 3.2.3). Soaring red meat prices
affected both food and catering services inflation negatively. On the other hand, amid the
authorization to import carcass meat granted to the Meat and Milk Board, domestic meat prices
remained relatively flat in September. As for food categories other than fresh fruits and vegetables as
well as red meat, prices displayed a moderate outlook in this quarter. Accordingly, annual inflation in
unprocessed food crept up by 3.87 points quarter-on-quarter to 13.23 percent in September.
The annual inflation in processed food continued to slow down in the third quarter (Chart 3.2.2).
Amid favorable developments in wheat production, inflation in bread and cereals decelerated further
and dropped to 6 percent in annualized terms. Meanwhile, prices of processed food excluding bread
and cereals followed a relatively mild course. On the other hand, significant surges registered by
vegetable oil prices throughout 2015 curbed the fall in processed food inflation.
26
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 3.2.1.
Chart 3.2.2.
Food and Energy Prices
Food Prices
(Annual Percent Change)
Processed Food
Energy
2
0
-5
-5
-10
-10
0911
0915
0615
0315
1214
0914
0614
0314
1213
0913
0613
0313
1212
0912
-4
0612
-4
0312
-2
1211
0
0911
0
-2
0
0915
4
2
5
0615
4
5
0315
6
10
1214
6
10
0914
8
0314
10
8
15
1213
10
15
0913
12
0613
14
12
0313
14
20
1212
16
0912
16
Unprocessed Food
20
0612
18
0312
18
1211
Food
0614
(Annual Percent Change)
Source: TURKSTAT, CBRT.
Due mostly to exchange rate effects, annual inflation in food and catering services rose to 11.56
percent, and consumer inflation excluding food and catering services reached 6.36 percent in the
third quarter (Chart 3.2.4). Given the high share of food within the consumption basket, the course of
food and related services can adversely affect inflation perception and expectation, especially
among consumers. Thus, bringing inflation in food-related categories down to levels consistent with the
consumer inflation target is of great importance. The measures to be proposed by the Committee on
Monitoring and Evaluation of Food and Agricultural Product Markets are expected to provide
significant contribution in this regard.
Chart 3.2.3.
Chart 3.2.4.
Selected Food Prices and CPI
Food and Non-Food Prices
(2005=100)
(Annual Percent Change)
0
0915
2
0
0615
2
0315
4
1214
4
0914
6
0614
8
6
0314
8
1213
120
10
0913
120
10
0613
180
0311
0611
0911
1211
0312
0612
0912
1212
0313
0613
0913
1213
0314
0614
0914
1214
0315
0615
0915
180
12
0313
240
12
1212
240
14
0912
300
16
14
0612
300
Food and Catering Services
CPI (excl. food and catering services)
16
0312
360
Fresh Fruits and Vegetables (seasonally adjusted)
Red Meat
360
CPI (seasonally adjusted)
Source: TURKSTAT, CBRT.
Energy prices fell by 0.70 percent in the third quarter. Given the downtrend in international oil
prices during the third quarter, Brent crude oil prices receded to 47 USD at the end of the quarter.
However, domestic energy prices were affected less favorably by the fall in international oil prices due
to the depreciation of the Turkish lira. Accordingly, fuel and bottled gas prices declined by 3.23 and
1.41 percent, respectively, in this quarter (Chart 3.2.5). As for administered prices, electricity prices were
virtually unchanged, while natural gas prices rose by 0.53 points. After the first-quarter jump, municipal
Inflation Report 2015-IV
27
Central Bank of the Republic of Turkey
tap water tariffs remained almost flat in this quarter (Chart 3.2.6). As a result, annual energy inflation
stood at 1.95 percent in the third quarter and continued to curb consumer inflation (Chart 3.2.1).
Chart 3.2.5.
Chart 3.2.6.
Domestic Energy Prices and Crude Oil
Domestic Energy Prices
(December 2010=100)
Brent Crude Oil (TL/bbl)
(Annual Percent Change)
Fuel
Liquid Hydrocarbons (bottled gas)
Natural Gas
Electricity
Fuel
Liquid Hydrocarbons (bottled gas)
180
35
160
160
25
25
140
140
15
15
120
120
5
5
100
100
-5
-5
80
80
-15
-15
60
60
-25
-25
1210
0311
0611
0911
1211
0312
0612
0912
1212
0313
0613
0913
1213
0314
0614
0914
1214
0315
0615
0915
Source: Bloomberg, TURKSTAT, CBRT.
35
1210
0311
0611
0911
1211
0312
0612
0912
1212
0313
0613
0913
1213
0314
0614
0914
1214
0315
0615
0915
180
Source: TURKSTAT.
Prices of alcoholic beverages and tobacco products posted a slight rise in the third quarter due
to adjustments in lump sum tax in July.
3.3. Domestic Producer Prices
Domestic producer prices increased by 2.20 percent in the third quarter amid rising
manufacturing prices and annual inflation rose to 6.92 percent (Table 3.3.1 and Chart 3.3.1). The
depreciation of the Turkish lira continued to have inflationary effects across subcategories in this
quarter.
Table 3.3.1.
D-PPI and Subcategories
(Quarterly and Annual Percent Change)
2014
D-PPI
Mining
Manufacturing
Manufacturing (excl. petroleum products)
Manufacturing (excl. petroleum and basic
metal products)
2015
III
IV
Annual
I
II
III
2.02
-0.82
6.36
2.60
2.81
2.20
0.92
-2.86
1.02
0.33
3.59
-3.41
2.18
2.35
-1.01
-0.06
7.63
8.98
2.64
2.65
3.45
3.12
2.12
2.70
2.37
0.16
9.56
2.70
3.22
2.88
Electricity and Gas
1.01
1.53
-3.56
1.80
-3.33
5.38
Water
0.95
4.54
11.90
13.75
2.21
0.27
Intermediate Goods
1.45
-0.36
6.53
1.97
2.96
3.05
Durable Goods
-0.50
0.84
7.55
5.15
3.20
4.07
-0.39
1.29
7.38
2.91
2.98
2.87
4.79
1.18
-0.07
0.49
-0.88
-5.54
13.82
5.97
-7.64
3.24
2.23
2.29
3.31
2.87
1.33
0.60
5.15
-0.49
D-PPI by Main Industry Groups
Durable Goods (excl. gold)
Non-Durable Goods
Capital Goods
Energy
Source: TURKSTAT, CBRT.
Manufacturing industry prices rose by 2.12 percent in this quarter, while annual inflation was
recorded as 7.34 percent, remaining unchanged from the previous quarter (Table 3.3.1 and
Chart 3.3.2). The depreciation of the Turkish lira had an adverse effect on manufacturing prices, which
28
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
was partially balanced by the favorable course of food manufacturing and international oil prices. In
fact, import prices receded in USD terms, but soared in TL terms in the third quarter (Chart 3.3.3).
Chart 3.3.1.
Chart 3.3.2.
Domestic Producer and Consumer Prices
Manufacturing Prices
(Annual Percent Change)
(Annual Percent Change)
-1
-1
-3
-3
-5
-5
0915
1
0315
1
0914
3
0314
5
3
0913
5
0313
7
0912
7
0312
9
0911
11
9
0311
11
0910
13
0310
13
0909
15
0309
15
0908
Manufacturing (excl. petroleum and
basic metal products)
Manufacturing
CPI
Source: TURKSTAT.
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
0907
0308
0908
0309
0909
0310
0910
0311
0911
0312
0912
0313
0913
0314
0914
0315
0915
D-PPI
Source: TURKSTAT, CBRT.
The depreciation of the Turkish lira had an extensive effect across all manufacturing industry
subcategories in this period (Table 3.3.1). Prices of durable goods soared by 4.07 percent mainly on
account of the increases in prices of gold, furniture and home appliances. The extensive increases
were also felt across capital and intermediate goods, the prices of which surged by 5.15 and 3.05
percent, respectively. The mild uptick in prices of non-durable goods, on the other hand, was driven by
food manufacturing prices. Price increases in the manufacturing industry excluding petroleum and
basic metal products, which entail information on the underlying trend of producer prices, recorded a
quarterly decline, yet remained high (Chart 3.3.4). As a result, cost pressures on consumer prices
remained brisk in the third quarter amid the cumulative depreciation of the Turkish lira.
Chart 3.3.3.
Chart 3.3.4.
Import Prices in USD and TL*
(2010=100)
Manufacturing Industry Prices Excluding Petroleum
and Basic Metal Products
(Seasonally Adjusted, Quarterly Percent Change)
3
90
90
2
2
70
70
1
1
50
50
* Forecast for September.
Source: TURKSTAT, CBRT.
Inflation Report 2015-IV
0915
3
0315
110
0914
110
0314
4
0913
4
0313
130
0912
130
0312
5
0911
5
0311
150
0910
150
0310
6
0909
6
0309
170
Import Prices (TL)
170
0908
Import Prices (USD)
0
0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III
2010
2011
2012
2013
2014
2015
Source: TURKSTAT, CBRT.
29
Central Bank of the Republic of Turkey
3.4. Expectations
Having deteriorated in the first half of the year, medium-term inflation expectations continued to
increase in the third quarter given the cumulative depreciation of the Turkish lira and its repercussions
on the core inflation indicators. 12-month-ahead inflation expectations remained on an unfavorable
track in October, while 24-month-ahead inflation expectations remained virtually unchanged
(Chart 3.4.1). Across maturities, 12-month-ahead inflation expectations were revised upwards on a
quarterly basis, while 24-month-ahead expectations recorded a more limited rise (Chart 3.4.2).
Accordingly, inflation expectations currently hover above the 5-percent year-end target set for 2015
and 2016.
Chart 3.4.1.
Chart 3.4.2.
12-Month and 24-Month-Ahead Inflation
Expectations*
Inflation Expectations**
(Annual Percent Change)
(Annual Percent Change)
3
2
2
1017
4
0817
4
4
3
0617
5
5
4
1008
0209
0609
1009
0210
0610
1010
0211
0611
1011
0212
0612
1012
0213
0613
1013
0214
0614
1014
0215
0615
1015
5
6
5
0417
6
0217
6
7
6
1216
7
8
7
1016
7
9
8
0816
8
10
0616
8
11
9
0416
9
Inflation Target
October 2015
10
0216
9
July 2015
Uncertainty Band
11
1215
12-Month-Ahead
10
1015
24-Month-Ahead
10
* CBRT Survey of Expectations, second survey period results for the pre-2013 period.
** Calculated by linear interpolation of expectations for different time spans using the CBRT Survey of Expectations, second survey period results for the
pre-2013 period.
Source: CBRT.
The dispersion of medium-term inflation expectations indicates deterioration in inflation
expectations in the inter-reporting period (Charts 3.4.3 and 3.4.4). The percentage of respondents
expecting 12-month-ahead inflation to be within the range of 4.5-7.49 percent decreased in this
period, while those expecting 7.5 percent or above recorded a notable increase. The deterioration in
the dispersion of 24-month-ahead inflation expectations proved more limited.
Chart 3.4.3.
Chart 3.4.4.
Distribution of 12-Month-Ahead Inflation
Expectations*
Distribution of 24-Month-Ahead Inflation
Expectations*
(Percent)
59
60
July 2015
60
54
October 2015
50
50
39
40
40
(Percent)
60
July 2015
60
51
53
October 2015
50
50
40
40
31
30
25
20
14
0
0
0
0
3
30
20
20
10
15
10
0
20
0
3.50-4.49 4.50-5.49 5.50-6.49 6.50-7.49
≥ 7.5
10
5 5
0
0
< 3.0
30
26
12
6
10
30
0
1
0
0
0
< 3.50
3.50-4.49 4.50-5.49 5.50-6.49 6.50-7.49
≥ 7.5
* CBRT Survey of Expectations, second survey period results for the pre-2013 period. Horizontal axis denotes inflation rates, while the vertical axis denotes
the Kernel forecast. For further details, see CBRT website Data/Tendency Surveys/Survey of Expectations/Methodological Information.
Source: CBRT.
30
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
4. Supply and Demand Developments
GDP data for the second quarter of 2015 show that economic activity was stronger than
anticipated in the July Inflation Report and national income posted a quarterly and annual growth of
1.3 and 3.8 percent, respectively. The annual GDP growth was mainly driven by industrial value added
that exhibited a stronger rise than industrial production; agricultural value added that rose upon
favorable weather conditions; and net taxes that have remained robust since the first quarter. The
quarterly GDP growth on the other hand, was fueled by the rising industrial value added. On the
expenditures side, annual growth was pushed upwards by the significant contribution of final domestic
demand via the private sector, while the quarterly growth was induced by private investments.
Meanwhile, net exports put a cap on growth in this quarter.
Data released for the third quarter of 2015 point out that quarterly GDP growth may decelerate
compared to the first half of the year. Industrial production has grown by 0.7 percent in July-August
period compared to the previous quarter. On the domestic demand front, elevated domestic and
external uncertainties led to an additional tightening in financial conditions and lagged effects of the
exchange rate kept prices of core goods on the rise, causing expectations of a mild course in private
consumption in the third quarter. On the other hand, the export quantity index excluding gold, which
declined slightly on a quarterly basis in the July-August period, is expected to rise in the third quarter.
Accordingly, external demand is projected to provide higher support to quarterly growth.
In the upcoming period, GDP growth is expected to follow a moderate course, yet downside
risks still persist. Due to the weak course of the confidence indices, the support from the confidence
channel may remain weak for some time. Amid domestic and external uncertainties, financial
conditions have tightened some more lately. Regarding external demand, both geopolitical
developments and the vague global monetary policy keep the downside risks brisk. On the other
hand, the rebound in European countries is likely to underpin external demand.
In case of alleviated uncertainties in domestic and global markets, the probable improvement
in financial conditions in addition to a possible rise in confidence will stand out as factors to stimulate
growth in 2016. Accordingly, it is expected in 2016 that domestic demand will contribute mildly to
growth and the support from external demand will expand amid the ongoing recovery in European
economies. Thus, the contribution of aggregate demand conditions to disinflation is expected to
continue in 2015 and 2016. It is anticipated that the lagged effects of the improvement in terms of
trade coupled with the current macroprudential framework will support the recovery in the current
account balance.
4.1. Supply Developments
According to the data released by TURKSTAT, economic activity in the second quarter of 2015
proved stronger than projected in the July Inflation Report, and the GDP posted a year-on-year
increase by 3.8 percent (Chart 4.1.1). This higher-than-expected increase in the GDP was driven by
industrial value added that increased faster than the annual industrial production and net taxes that
continued to expand considerably above the industrial value added in this quarter. In seasonal and
Inflation Report 2015-IV
31
Central Bank of the Republic of Turkey
calendar effect adjusted terms, the GDP grew by 1.3 percent quarter-on-quarter. Adding 2.7 percent
more compared to the first quarter, the industrial value added was marked as the pioneering
contributor to quarterly growth in the third quarter. Other sectors also contributed positively to quarterly
growth (Chart 4.1.2).
Chart 4.1.1.
Chart 4.1.2.
Annual GDP Growth and Contributions from the
Production Side(Percentage Points)
Quarterly GDP Growth and Contributions from the
Production Side (Seasonally Adjusted, Percentage Points)
Net Taxes
14
14
Net Taxes
5
12
Construction
Industry
10
12
8
6
6
4
4
2
2
0
0
-2
-2
Services
3
2012
2013
2014
3
GDP
2
2
1
1
0
0
-1
-1
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2011
4
Industry
10
GDP
2010
Construction
4
Services
8
5
Agriculture
Agriculture
2010
2015
2011
2012
2013
2014
2015
Source: TURKSTAT.
Industrial production adjusted for calendar effects maintained its first-quarter pace from July to
August, posting a year-on-year increase by 3.6 percent (Chart 4.1.3). The industrial production data
adjusted for seasonal and calendar effects suggest a surge in August following a fall in July and a rise
by 0.7 percent above the second quarter average in the July-August period (Chart 4.1.4).
Chart 4.1.3.
Chart 4.1.4.
Industrial Production Index
Industrial Production Index
(Annual Percent Change)
Industrial Production Index
(Seasonally Adjusted, Quarterly Percent Change)
20
Industrial Production Index (adjusted for calendar effect)
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
-25
-25
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 23*
2007 2008 2009 2010 2011 2012 2013 2014 2015
* As of August.
Source: TURKSTAT.
32
5
5
4
4
3
3
2
2
1
0.7 1
0
0
-1
-1
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2010
2011
2012
2013
2014
2015
Source: TURKSTAT.
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
In September 2015, the 3-business day difference compared to September 2014 due to the Eid
coupled with the bridge day effect owing to the announcement of extra days off before the religious
holiday are expected to plunge the data in annual percentage change terms. Thus, in order for a
better evaluation of the economic activity, September data should be interpreted using the annual
percentage changes adjusted for calendar effects. Accordingly, production is likely to shrink
considerably in September on an annual basis. The data adjusted for seasonal and calendar effects
suggest a decline in production of vehicles in September. On the other hand, survey indicators also
show that production will follow a modest course on a monthly basis due to the domestic market
developments in September. In fact, the BTS suggests a more significant weakening in registered orders
for the domestic market than export orders. PMI and the PMI production index indicators posted a
month-on-month decline and stood below 50 (Charts 4.1.5 and 4.1.6). The BTS questions on the
investment tendency and the overall course of industry, which capture investor confidence, also
indicate some deterioration. Hence, industrial production is projected to fall in September and post a
modest quarter-on-quarter rise in the third quarter. Moreover, the fact that the domestic and external
uncertainties may restrict the contribution of the confidence channel in the second half of the year,
besides the volatility in the exchange rate and tightening in financial markets pose a downside risk on
domestic demand. In the upcoming period, it is envisaged that growth composition will change
gradually in favor of net exports owing also to the rising demand from the EU countries, and increases in
industrial production will remain mild for the rest of the year with the support from exports.
Chart 4.1.5.
Chart 4.1.6.
BTS Registered Orders
PMI and PMI Production
(Above Normal-Below, Seasonally Adjusted, Percent)
Domestic Market
Exports
0
(Seasonally Adjusted)
PMI
-4
PMI Production
0
62
62
-4
58
58
-8
54
54
-12
50
50
-16
46
46
-20
42
42
-8
-12
Source: CBRT.
0915
0515
0115
0914
0514
0114
0913
0513
0113
0912
0512
0915
0515
0115
0914
0514
0114
0913
0513
0113
0912
0512
0112
0911
-24
0112
-20
0911
-16
Source: Markit.
4.2. Demand Developments
The GDP data for the second quarter of 2015 on the expenditures side indicate that final
domestic demand offered an increased contribution to annual growth compared to the previous
quarter, whereas net exports continued to pull it down (Chart 4.2.1). The acceleration in final domestic
demand in this quarter resulted from both consumption and investment expenditures. In seasonally
adjusted terms, quarterly growth was supported by domestic demand but deteriorated by exports.
Inflation Report 2015-IV
33
Central Bank of the Republic of Turkey
Chart 4.2.1.
Chart 4.2.2.
Annual GDP Growth and Contributions from the
Demand Side (Percentage Points)
Domestic Private Consumption by Sub-Components*
(Seasonally Adjusted, 2011Q1=100)
Private Consumption
Net Exports
20
20
Change in Inventories
Final Domestic Demand
15
115
Durable Goods
115
110
Other Consumption
110
15
GDP
10
10
5
105
105
100
100
95
95
90
90
85
85
80
80
75
75
5
0
0
-5
-5
-10
-10
70
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2010
2011
2012
2013
2014
70
1234123412341234123412341234123412
15
2007 2008 2009 2010 2011 2012 2013 2014 15
* Domestic private consumption is categorized under 10 listings by the
TURKSTAT. Accordingly, spending on furniture and household appliances,
transport and communication as well as leisure and culture, which include
items such as automobiles, furniture and television, are classified as durable
goods, while the remaining is called other consumption.
Source: TURKSTAT.
Source: TURKSTAT.
Private consumption expenditures recorded a quarter-on-quarter uptick in the second quarter.
Expenditures on durable goods declined, while expenditures on other consumption goods followed a
flat course in this quarter (Chart 4.2.2). Meanwhile, the relatively sluggish course of expenditures on
durable goods in the last two quarters curbed the growth of private consumption. Private machinery
and equipment and private construction investments displayed a stronger-than-expected upsurge in
the second quarter (Chart 4.2.3). Thus, private investments registered the highest quarterly growth in
this quarter since 2011. On the public sector front, public consumption remained on an uptrend in the
second quarter, and public investments also rose due to machinery and equipment investments.
Quarterly growth in total government spending remained unchanged from the previous quarter
(Chart 4.2.4).
Chart 4.2.3.
Chart 4.2.4.
Private Investments and the GDP
Private and Public Sector Demand
(Seasonally Adjusted, 2011Q1=100)
GDP
(Seasonally Adjusted, 2011Q1=100)
Private Machinery and Equipment
120
Private Sector
Public Sector
120
140
140
110
110
130
130
100
100
120
120
90
90
110
110
100
100
90
90
80
80
70
70
Private Construction
80
80
70
70
60
60
50
50
1234123412341234123412341234123412
2007 2008 2009 2010 2011 2012 2013 2014 15
60
60
1234123412341234123412341234123412
2007 2008 2009 2010 2011 2012 2013 2014 15
Source: TURKSTAT.
34
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 4.2.5.
Chart 4.2.6.
Production and Imports of Consumption Goods
Domestic Sales of Automobiles and Light Commercial
Vehicles
(Seasonally Adjusted, 2010=100)
(Seasonally Adjusted, Thousand)
Production
Automobiles
Imports (right axis)
130
125
125
115
120
Light Commercial Vehicles (right axis)
70
18
16
60
105
115
110
95
105
85
100
75
95
14
50
12
40
10
8
30
65
90
55
85
80
45
6
20
10
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 23*
2007 2008 2009 2010 2011 2012 2013 2014
4
2
12341234123412341234123412341234123
15
2007 2008 2009 2010 2011 2012 2013 2014
* As of August.
Source: TURKSTAT, CBRT.
15
Source: AMA, CBRT.
In the first half of 2015, domestic demand provided higher support to growth than external
demand. Hence, growth was mainly driven by domestic demand. The third-quarter data signal a
slowdown in domestic demand and a rebound in exports, which implies a probable change in growth
composition in favor of net exports. In fact, production of consumption goods, which is one of the
private demand indicators, decreased from July to August, while their imports edged up (Chart 4.2.5).
Sales of automobiles declined in the third quarter (Chart 4.2.6). Consumer confidence remained on a
downtrend. In the July-August period, production of machinery and equipment increased, whereas
their imports declined compared to the previous quarter (Chart 4.2.7). As for construction indicators,
production of mineral products increased, while the imports thereof decreased (Chart 4.2.8). Despite a
slight increase in the third quarter, investor confidence remained low. All in all, current indicators
suggest a moderate contribution by domestic demand to growth in the third quarter.
Chart 4.2.7.
Chart 4.2.8.
Production and Imports of Machinery and Equipment
Production and Imports of Mineral Products
(Seasonally Adjusted, 2010=100)
(Seasonally Adjusted, 2010=100)
Production
Imports
Production
Imports (right axis)
160
160
120
140
150
150
115
130
140
140
110
120
130
130
105
110
120
120
110
110
100
100
100
100
95
90
90
90
90
80
80
80
85
70
70
70
60
60
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 23*
2007 2008 2009 2010 2011 2012 2013 2014
15
80
60
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 23*
2007 2008 2009 2010 2011 2012 2013 2014
15
* As of August.
Source: TURKSTAT, CBRT.
Amid the downturn in global economy and geopolitical developments, exports of goods and
services declined in the second quarter on a quarterly basis. Imports of goods and services edged
Inflation Report 2015-IV
35
Central Bank of the Republic of Turkey
down in this period (Chart 4.2.9). On the other hand, the analysis of quantity indices excluding gold,
which give a better understanding of the underlying trend of external trade, points to an increase in
exports, but a relatively flat course in imports in the second quarter (Chart 4.2.10). In August, export and
import quantity indices excluding gold recorded a decline compared to the previous quarter.
However, the fall in the export quantity index excluding gold remained limited. In the upcoming period,
the adverse effects of geopolitical developments notwithstanding, exports are expected to improve
on the back of rising demand from the EU countries. Given this and the fact that import demand may
decelerate depending on the course of domestic demand, net exports may strengthen the
improvement in the current account balance in the upcoming period.
Chart 4.2.9.
Chart 4.2.10.
Exports, Imports and the GDP
Export and Import Quantity Indices
(Seasonally Adjusted, 2011Q1=100)
GDP
Exports
130
Imports (right axis)
125
(Excluding Gold, Seasonally Adjusted, 2011Q1=100)
Exports
Import
130
130
120
120
120
110
110
110
105
100
100
100
100
90
90
90
80
80
80
70
70
70
120
115
130
110
95
90
85
80
75
60
60
1234123412341234123412341234123412
Source: TURKSTAT.
60
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 23*
2007 2008 2009 2010 2011 2012 2013 2014 15
2007 2008 2009 2010 2011 2012 2013 2014 15
* As of August.
Source: TURKSTAT, CBRT.
In sum, economic activity posted a brisk growth in the second quarter of 2015 thanks to the
stronger-than-expected and notable growth in private investments. In the first half of 2015, domestic
demand added more to growth than external demand. However, the second half is expected to
witness a change in growth composition in favor of net exports. On the other hand, vagueness in
global markets coupled with the languishing course of confidence indices pose a downside risk on
growth. Against this background, demand conditions are projected to support the improvement in the
current account balance and pull inflation down.
Outlook for 2016
Recently, consumer and investor confidence have subsided, financial conditions have
tightened and global capital flows have grown more volatile and sluggish. Moreover, ambiguity
regarding the Fed’s policy rate hike persisted, the Chinese economy lost pace and geopolitical
developments continued to affect our trading partners adversely. All these are expected to have an
impact on growth and demand composition through various channels in 2016. The extent to which
domestic demand will be influenced by these developments will depend on the future course of
domestic and external uncertainties that had an effect on economic activity throughout 2015. On the
other hand, signals of recovery in the European economies and progress towards the solution of Greek
debt problems stand out as favorable developments.
36
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
The economic growth is projected to increase slightly in 2016 under the assumption that exports
are supported by the European recovery and the real exchange rate depreciation through the
income and the price channel, respectively, and that domestic uncertainties lessen and geopolitical
developments do not pose an additional negative effect via the confidence and trade channel. The
demand outlook for 2016 suggests a slight weakening in domestic demand and an uptick in exports.
Against this background, downside risks to external demand are more apparent, while risks on
domestic demand are more balanced.
Chart 4.2.11.
Chart 4.2.12.
GDP and Imports in the Euro Area
GDP and Imports in MENA
(Annual Percent Change)
(Annual Percent Change)
GDP
Imports
GDP
12
12
9
9
Imports
24
24
21
21
18
18
6
6
15
15
3
3
12
12
0
0
9
9
6
6
-3
-3
3
3
-6
-6
0
0
-3
-3
-6
-6
2017*
2013
2015*
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
2017*
2013
2015*
2011
2009
2007
-12
2005
-12
2003
-15
2001
-9
-15
1999
-9
1997
-12
1995
-12
1993
-9
1991
-9
* Forecast.
Source: WEO.
External demand is projected to improve, yet downside risks still persist. Developments pertaining
to economic activity in advanced economies play an important role in the Turkish export dynamics.
Accordingly, the rebound in the European economies is envisaged to support exports in 2016
(Chart 4.2.11). Despite the expected recovery in the MENA countries, geopolitical developments
indicate apparent downside risks to our exports to this region (Chart 4.2.12). Vagueness regarding
exports to Russia and Iraq is another factor feeding into downside risks. The impact of the Fed’s
decisions and the effect of the deceleration in the Chinese economy on the global economy
accompanied by the blurred destiny of the rebound in Europe also mark downside risks to external
demand.
Global growth forecasts signal milder growth in 2016 and also over the medium term
(Chart 4.2.13). Accordingly, the likelihood of global potential growth to narrow slightly may stand out
as a constraint against domestic economic growth. Meanwhile, global goods trade, which record
higher growth rates than global GDP growth, has recently posted a relative deceleration. More
specifically, global goods imports, which surged by 1.6 times of growth on average in the 2002-2007
period, lagged below growth by 80 percent on average from 2012 to 2014. This suggests that the
competition in exports may have risen higher than implied by the weakening in global growth. Due to
the structural transformation experienced in the 2000s as well as the increased integration into the
global economy, the GDP growth in Turkey has been more closely linked to global growth
(Chart 4.2.14). Yet, in this environment of increasing global competition, the enforcement of the
structural reforms in the MTP is still more important to the achievement of a sustainable and balanced
growth even if external demand growth and real exchange rate developments seem favorable.
Inflation Report 2015-IV
37
Central Bank of the Republic of Turkey
Chart 4.2.13.
Chart 4.2.14.
Global GDP and Imports
GDP Growth
(Annual Percent Change
(Annual Percent Change
-6
0
2017*
-12
1993
-12
2013
1
2015*
-3
2011
2
2009
0
2007
3
2005
3
2003
4
2001
6
1999
5
1997
9
1991
-9
2017*
-9
2013
-6
2015*
-3
-6
2011
-3
2009
0
2007
0
2005
3
2003
6
3
2001
6
1999
9
1997
9
1995
12
1993
15
12
1991
15
1995
12
Turkey
Global (right axis)
Average Global GDP Growth (2000-2007, right axis)
6
GDP
Imports
Average Global Imports Growth (2000-2007)
* Forecast.
Source: WEO.
Risks regarding domestic demand are balanced. Thanks to macroprudential measures
implemented after 2010, the national income displayed a balanced and relatively less volatile growth,
while final domestic demand followed a moderate course after a gradual recovery (Chart 4.2.15).
Domestic demand is expected to maintain its mild course in 2016 as well. Tightening in financial
conditions driven by domestic and external developments poses a downside risk on domestic
demand. However, in the case that domestic uncertainties alleviate, this tightening is expected to
neither last nor cause a notable slowdown in domestic demand. On the other hand, should domestic
uncertainties wane, the possible rise in consumer and investor confidence may pose upside risks to
domestic demand. In addition, the strong employment performance after the global crisis is expected
to support domestic demand via the income channel and the projected fall in the current account
deficit accompanied by the robust public finances create room for policy maneuvering, which may
also support domestic demand.
Chart 4.2.15.
Chart 4.2.16.
GDP and Final Domestic Demand Growth
Shares in National Income
(8-Quarter Moving Average)
(Current Prices, Percent)
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: TURKSTAT.
Private Demand
Exports (right axis)
Imports (right axis)
92
34
32
89
30
28
86
26
24
83
22
20
80
18
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015*
GDP
Final Domestic Demand
* Annualized.
Source: TURKSTAT.
The macroprudential measures adopted after 2010 caused domestic demand to grow slower
than the GDP. Accordingly, the share of the private sector within the GDP contracted, while that of
38
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
imports remained unchanged (Chart 4.2.16). Conversely, the share of exports increased in this period. It
is anticipated that domestic demand will follow a mild course; external demand will exhibit a rebound;
and hence, the growth composition will be balanced further in 2016. Thus, the current macroprudential
framework will continue to support the improvement in the current account balance (Chart 4.2.17).
Against this background, aggregate demand conditions are expected to contribute to disinflation in
2016 (Chart 4.2.18).
Chart 4.2.17.
Chart 4.2.18.
Current Account Balance
Output Gap
(12-Month Cumulative, Billion USD)
(Percent)
30
Current Account Balance
Current Account Balance (excl. gold)
Current Account Balance (excl. energy and gold)
30
1.0
1.0
10
10
0.5
0.5
-10
-10
0.0
0.0
-30
-30
-0.5
-0.5
-1.0
-1.0
-50
-50
-1.5
-1.5
-70
-70
-90
-90
-2.0
1
2
0815
0215
0814
0214
0813
0213
0812
0212
0811
0211
0810
0210
0809
-2.0
3
4
1
2
2015
Source: TURKSTAT, CBRT.
3
4
2016
Source: CBRT.
4.3. Labor Market
Unemployment rates have trended upwards in 2015 due to mild economic growth. Non-farm
unemployment rate, which receded in the first quarter of 2015, increased in the second and third
quarters (Chart 4.3.1). Non-farm employment surged in the first quarter of 2015, yet lost momentum in
the pursuing period. On the other hand, the labor participation rate, which paused in the first two
quarters, has re-settled on an increasing trend in April (Chart 4.3.2). Combined with the modest outlook
in employment, this caused unemployment rates to soar.
Chart 4.3.1.
Chart 4.3.2.
Unemployment Rates
Non-Farm Employment and Non-Farm Labor Force
(Seasonally Adjusted, Percent)
Labor Force Participation Rate (right axis)
Unemployment Rate
Non-Farm Unemployment Rate
18
(Seasonally Adjusted, Percent)
Non-Farm Employment/Population 15+
Non-Farm Labor Force/Population 15+ (right axis)
52
38
42
51
37
41
50
36
40
49
35
39
34
38
33
37
32
36
31
35
30
34
16
14
48
12
47
10
46
45
8
2008
2009
2010
* As of July.
Source: TURKSTAT.
Inflation Report 2015-IV
2011
2012
2013
2014
0715
0115
0714
0114
0713
0113
0712
0112
0711
0111
0710
0110
0709
43
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*
0109
6
0708
44
2015
Source: TURKSTAT.
39
Central Bank of the Republic of Turkey
The analysis of non-farm employment by sectors indicates that the services sector continued to
be the main driver of employment growth (Chart 4.3.3). Public administration, education, health and
administrative services offered further contribution to services employment. On the other hand,
moderate economic activity and the stagnant tourism sector restrict services employment. In general,
industrial employment posted a limited increase in 2014 and the first half of 2015 amid the deceleration
in production. Fluctuating industrial employment recorded a decline in June and July (Chart 4.3.4).
Leading indicators do not signal an additional deterioration in industrial employment in the third
quarter. Quarterly averages reveal a mild increase in industrial production. Having crept up in
September, PMI employment has still remained close to the neutral mark in the last 6 months, indicating
that the ratio of firms lowering employment is equal to those increasing employment.
Chart 4.3.3.
Chart 4.3.4.
Contributions to Monthly Changes in Non-Farm
Employment
Industrial Production, Industrial Employment and PMI
Employment
(Seasonally Adjusted, Percentage Points)
(Seasonally Adjusted)
Services
Construction
Industry
Non-Farm Employment
1.6
1.6
1.2
1.2
Industrial Production (2010=100, 3-month moving average)
Industrial Employment
PMI Employment (right axis)
125
70
120
65
115
0.8
0.8
0.4
0.4
60
110
55
105
50
100
Source: TURKSTAT.
45
95
40
90
0915
0315
0914
0314
0913
0313
0912
0312
0911
0311
0910
30
0310
80
0909
35
0309
85
0908
0715
0515
0315
0115
1114
0914
0714
0514
0314
0114
-0.8
1113
-0.8
0913
-0.4
0713
-0.4
0513
0.0
0313
0.0
Source: TURKSTAT, Markit.
After receding in the first half of the year, construction employment posted an uptick in July
(Chart 4.3.5). Following the flat course in April, the August recovery in production of non-metallic
minerals, a key indicator for construction employment, is consistent with the rise in construction
employment. Indicators related to industrial employment do not point to a decline. On the other hand,
unemployment expectations of households are worsening. The CBRT Consumer Confidence Index and
the expectation of the number of unemployed, one of the sub-items of the index, plunged in the third
quarter, suggesting that a recovery in unemployment is yet to appear (Chart 4.3.6).
40
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 4.3.5.
Chart 4.3.6.
Construction Employment and Production of NonMetallic Mineral Products
Consumer Confidence, Expectation of Number of
Unemployed and Non-Farm Unemployment Rate*
(Seasonally Adjusted, 2010=100)
CBRT Consumer Confidence Index
Expectation of Number of Unemployed
Non-Farm Unemployment Rate (seasonally adjusted, right axis)
Construction Employment
Non-Metallic Mineral Products (3-month moving average)
150
150
140
140
130
130
100
19
18
90
17
16
80
120
120
110
110
70
100
100
60
90
90
80
80
15
14
13
11
10
50
9
3412341234123412341234123412341234
0815
0215
0814
0214
0813
0213
0812
0212
0811
0211
0810
0210
0809
0209
0808
0208
12
2007 2008 2009 2010 2011 2012 2013 2014 2015
* Declining expectation of number of unemployed denotes worsening
expectations.
Source: TURKSTAT, CBRT.
Source: TURKSTAT.
Wage developments reveal that hourly wages, which surged in the first quarter of 2015, lost
some pace in the second quarter (Chart 4.3.7). Also due to inflation developments, wages remained
unchanged in real terms in this period. Hourly wages continued to move in tandem with the minimum
wage. A rise in hourly wages above expected inflation and productivity gains is a factor that pushes
firm costs up. Accordingly, productivity gains in the second quarter balanced the rise in hourly wages in
the first half of the year. In the second quarter of 2015, hourly wages increased, whereas unit labor
costs receded due to the productivity gains amid the rise in production. The annual growth of unit
labor costs in industrial and services sectors stood around 10 percent.
Chart 4.3.7.
Chart 4.3.8.
Non-Farm Hourly Labor Cost*
Unit Labor Cost*
(Seasonally Adjusted, 2010=100)
(Annual Percent Change)
Labor Earnings (annual percent change, right axis)
Industry
Services
Real Earnings
118
Real Minimum Wage
114
14
30
30
12
25
25
20
20
15
15
10
10
5
5
110
10
106
8
102
6
98
4
0
0
94
2
-5
-5
0
-10
90
123412341234123412341234123412
2008
2009
2010
2011
2012
2013
2014 2015
* Real earnings and real minimum wage are deflated by CPI.
Source: TURKSTAT, Ministry of Labor and Social Security, CBRT.
-10
123412341234123412341234123412341
2007 2008 2009 2010 2011 2012 2013 20142015
* In the services sector, unit labor cost is measured as the ratio of total wage
payments to turnover deflated by services prices. In the industrial sector,
total wage payments are divided by output.
Source: TURKSTAT, CBRT.
In sum, amid the relatively low rate of increase in non-farm employment, the unemployment
rate posted a quarter-on-quarter surge during June and July. The services sector, the leading driver of
non-farm employment, contributed further to the rise in employment in this period. Industrial
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
employment receded, while construction employment rose in July, partially compensating for the
losses in the first half of the year. Leading indicators signal probable limited increases in non-farm
employment for the upcoming period. Given both the mild course of employment and the rise in the
non-farm labor force, unemployment rates are not expected to decline the rest of the year. Domestic
and external uncertainties remain as downside risk factors against economic activity and the labor
market.
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Box
4.1
The
Determinants of Consumer Confidence Index in Turkey
literature offers strong evidence that the consumer confidence index can be used to estimate
consumption expenditures. Studies along this line have become more popular after Katona (1968) who
showed that willingness to buy is at least as important as purchasing power on consumption decisions. Many
empirical studies such as Carroll et al. (1994) for the US, Nahuis and Jansen (2004) for some European
countries, Delorme et al. (2001) for the UK, and Belessiotis (1996) for France showed that consumer
confidence is a leading indicator for household consumption. A limited number of studies on Turkey find a
similar result that consumer confidence plays a crucial role in estimating household consumption (Arısoy, 2012;
Karasoy and Yüncüler, 2015).
The
fact that consumer confidence correlates with consumption expenditures necessitates a better
understanding of the factors determining its dynamics. The literature often classifies these factors into two
groups: macroeconomic variables (such as industrial production, inflation and unemployment rate) and
financial variables (such as exchange rate, interest rates and stock market index). By adopting the
methodology in Gürgür and Kılınç (2015), this box identifies the short-run and long-run determinants of
consumer confidence in Turkey.
The
study utilizes the consumer confidence index constructed by CBRT and TURKSTAT. The dataset covers
observations between January 2004 and April 2015. The explanatory variables are industrial production index,
unemployment rate, consumer price index, TL/USD exchange rate and consumer loan rate. Table 1 displays
the description of variables along with their sources.
Table 1. Data Description
Variable
Abbreviation
Source
Range
CCI
TURKSTAT
2004:01-2015:04
TL/USD Exchange rate
EXCH
CBRT
2004:01-2015:04
Consumer Loan Rate
INT
CBRT
2004:01-2015:04
Unemployment Rate
UNEMP
TURKSTAT
2005:01-2015:03
Seasonally adjusted
IPI
TURKSTAT
2005:01-2015:03
Seasonally adjusted, log
CPI
TURKSTAT
2004:01-2015:04
Seasonally adjusted, log
Consumer Confidence
Index
Industrial Production
Index
Consumer Price Index
Notes
Average of the first two weeks of
each month, log
Unit root tests show that the set of variables is not balanced; i.e. the series have different orders of integration.
This result, coupled with the relatively low number of observations, necessitates the use of Pesaran’s bounds
test technique for analyzing the long-run relationship.1 The bounds test uses the ARDL approach to investigate
the presence of cointegration through an unrestricted error correction model. Accordingly, the existence of
cointegration is tested using the following equation:
p−1
ΔCCIt = α0 + (βCCIt−1
+ θ′ X
t−1 )
+ ∑ β1i ΔCCIt−i + ∑ γ′ ΔXt−i + εt
i=1
1
p−1
(1)
i=0
For further details, see Gürgür and Kılınç (2015).
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
where
CCIt is the consumer confidence index, Xt is the vector of explanatory variables, Δ is the first-
difference operator and p is the number of lags. The F-test based on the significance of coefficients for the
lagged values points to the presence of a cointegration among variables. Therefore, an ARDL model is
formed to estimate the long-run relationship between the variables. The model controls for autocorrelation
and the simultaneity between variables by including the first differences and lagged values of the
explanatory variables. The long-run relationship is formulated as below:
p
CCIt = α0 +
θ′ X
t
+ ∑ β1i CCIt−i + ∑ γ′ ΔXt−i + εt
i=1
The
q
(2)
i=0
above model is estimated following Pesaran et al. (2001) and results are presented in Table 2.
Accordingly, all variables except industrial production index are found to be statistically significant. A rise of
1 percent in the exchange rate reduces the consumer confidence by 0.28 points in the long term, while an
equal increase in the CPI lowers confidence by 0.61 points. Similarly, a 1-percent increase in consumer loan
rates and the unemployment rate decreases the confidence index by 1.74 and 3.51 points, respectively.
Table 2. ARDL and Long-Run Model Estimation Results
Variable
EXCH
INT
UNEMP
IPI
CPI
Parameter
-0.28
-1.74
-3.51
0.09
-0.61
Standard Deviation
0.06
0.31
0.75
0.19
0.12
t-statistics
-4.69***
-5.56***
-4.70***
0.47
-5.20***
*, **, and *** denote significance at 10 percent, 5 percent and 1 percent, respectively. All estimations are
conducted by Least Squares Estimator.
As a final step, the short-run determinants of consumer confidence are estimated using an error correction
model. The estimation results presented in Table 3 show that any disequilibrium between consumer
confidence and its correlates is restored quite rapidly as evidenced by the relatively high parameter
estimate for Δect, which denotes the first-differenced error correction term. In fact, the half-life of the shocks
is as low as 2 months. Moreover, increases in the exchange rate, interest rate, unemployment rate and the
CPI lead to an immediate effect on consumer confidence.
Table 3. Short-Run Parameter Estimations
Variable
Δect
ΔCCI(-1)
ΔCCI(-2)
ΔCCI(-3)
ΔCCI(-4)
ΔCCI(-5)
ΔCCI(-6)
ΔEXCH
ΔEXCH(-1)
ΔEXCH(-2)
ΔEXCH(-3)
ΔEXCH(-4)
ΔEXCH(-5)
ΔEXCH(-6)
ΔINT
ΔUNEMP
ΔUNEMP(-1)
ΔUNEMP(-2)
ΔIPI
ΔCPI
Parameter
-0.35
0.09
0.04
0.27
0.15
0.27
0.31
-0.42
-0.08
-0.06
0.14
0.11
0.21
0.15
-0.83
-1.55
2.16
2.85
0.01
-0.87
Standardized
Parameters
-0.67
0.9
0.04
0.27
0.15
0.27
0.31
-0.54
-0.10
-0.07
0.18
0.15
0.28
0.19
-0.34
-0.15
0.22
0.29
0.00
-0.18
t-statistics
-7.56***
1.29
0.50
3.61***
1.61
2.92***
3.35***
-7.40***
-1.81*
-0.90
2.30**
1.82*
4.08***
2.93***
-5.14***
-2.71***
3.78***
3.49***
0.04
-3.82***
*, **, and *** denote significance at 10 percent, 5 percent and 1 percent, respectively. All estimations are
conducted by Least Squares Estimator. Standardized parameters are obtained by multiplying parameter
estimates by the ratio of their standard deviations to the standard deviation of the dependent variable.
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A 1-percent increase in the exchange rate and CPI reduces the confidence index in the short run by 0.42
and 0.87 points, respectively. A similar increase in the consumer loan rates and unemployment rate lowers
the confidence index by 0.83 and 1.55 points, respectively. The negative effect of the exchange rate on
consumer confidence is counterbalanced partially in the subsequent periods, which points to a complex
and non-monotonic relationship between the exchange rate and the consumer confidence index. While
depreciation of the Turkish lira lowers consumer confidence due to loss of purchasing power and worsening
expectations, it also boosts consumer confidence via the wealth effect owing to the FX-denominated
deposits held by consumers. The unemployment rate also has an ambiguous effect on the confidence
index. However, this may be due to the measurement of the unemployment rate series in 3-month moving
average terms.
In sum, consumer prices, the unemployment rate, consumer loan rates and the exchange rate are found to
have both short-term and long-term effects on the consumer confidence index, whereas industrial
production index does not have any impact. In the short run, the exchange rate and consumer prices are
more effective on the consumer confidence index than the other variables. This shows that, besides
providing other benefits, maintaining price stability plays a great role in raising consumer confidence as
well.
REFERENCES
Arısoy, İ., 2012, Türkiye Ekonomisindeki İktisadi Güven Endeksleri ve Seçilmiş Makro Değişkenler Arasındaki
İlişkilerin VAR Analizi (in Turkish), Maliye Dergisi, 162(January-June): 304-315.
Belessiotis, T., 1996, Consumer Confidence and Consumer Spending in France, European Commission
Economics Papers No. 116.
Carroll, C.D., J.C. Fuhrer and W. Wilcox, 1994, Does Consumer Confidence Forecast Household Expenditure?
A Sentiment Horse Race, American Economic Review, 84(5): 1397-1408.
Delorme, C.D., D.R. Kamerschen and L.F. Voeks, 2001, Consumer Confidence as a Predictor of Consumption
Spending: Evidence for the United States and the Euro Area, Applied Economics, 33(7): 863-869.
Gürgür, T. and Z. Kılınç, 2015, What Drives the Consumer Confidence in Turkey?, CBT Research Notes in
Economics No. 15/17.
Karasoy, H.G. and Ç. Yüncüler, 2015, The Explanatory Power and the Forecast Performance of Consumer
Confidence Indices for Private Consumption Growth in Turkey, CBRT Working Paper No. 15/19.
Katona, G., 1968, Consumer Behavior: Theory and Findings on Expectations and Aspirations, American
Economic Review, 58(2): 19-30.
Nahuis, N.J. and W.J. Jansen, 2004, Which Survey Indicators are Useful for Monitoring Consumption?
Evidence from European Countries, Journal of Forecasting, 23(2): 89-98.
Pesaran, M.H., Y. Shin and R.J. Smith, 2001, Bounds Testing Approaches to the Analysis of Level Relationships,
Journal of Applied Econometrics, 16(3): 289-326.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
Box
Estimating Income and Price Elasticity of Turkish Exports with Heterogeneous Panel Time
4.2
Series Methods
Estimation of price and income elasticity of exports is crucial due to its implications on growth, international
competitiveness, balance of payments and industrial policies. Price elasticity shows the relative competitive
power of a country’s production, while income elasticity captures the effects of other factors like export
composition, distance and market strategy (Baiardi et al., 2014). Sustainable growth in exports is of great
importance regarding the balancing process and stable growth. Moreover, accurate measurement of
price and income elasticity of exports produces an important input for designing a sustainable export
policy.
This study estimates long-term income and price elasticity of Turkish exports for country groups using panel
time series techniques. Country groups are determined on the basis of geographical region (EU27, Other
Europe, Asia, MENA) and the level of economic development (developed and developing countries). The
study uses bilateral trade data on a country basis by also taking into account the cross-sectional
dependence between countries. There are various studies on income and price elasticity of Turkish exports,
but most of them utilize aggregate data on exports. Using aggregate data, on the other hand, may cause
missing of important movements in micro data due to aggregation bias (Bahmani-Oskooee and Goswami,
2004; Marquez, 2005). In fact, Halıcıoğlu (2007) and Kaplan and Kalyoncu (2011) show evidence of
aggregation bias for the Turkish economy. Aggregation bias is attributed to the heterogeneous structure of
both exported goods and the export destination. Various studies exist for the Turkish economy, which
consider the heterogeneity on a product basis, while only a few studies are present that allow
heterogeneity across country groups. Halıcıoğlu (2007), Uz (2010) and Berument et al. (2014) estimate export
elasticity on a country basis, without making an inference on country groups and considering the intercountry cross-sectional dependence. On the other hand, Çulha and Kalafatcılar (2014) estimate elasticity
by country groups, yet employ aggregate data on a regional basis rather than using bilateral trade data
on a country basis. This empirical analysis aims to fill this gap in the literature by using data on a country
basis and taking cross-sectional dependence between countries into consideration.
The analysis covers the 2005-2013 period and utilizes quarterly data of 67 countries in seasonally adjusted
terms, which account for more than 80 percent of Turkish exports. In order to measure the long-term price
and income elasticity coefficient of Turkish exports, a standard export demand function is estimated
following Goldstein and Khan (1985), which includes external demand and relative prices as follows:
Exportsi,t = c + β1 ∗ GDPi,t + β2 ∗ RER i,t + εi,t
where
Exportsi,t denote real exports from Turkey (excluding gold) to country i; GDPi,t is real national
income of country i in time t; RER i,t is the bilateral real exchange rate between country i and Turkey. Real
exports and real exchange rate are based on the authors’ calculations.2
2
For further details, see Bozok et al. (2015).
46
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
The above equation is estimated using 3 alternative panel time series methods: Dynamic Ordinary Least
Squares (DOLS), Mean Group (MG) and Common Correlated Effects Mean Group (CCEMG). The DOLS
method assumes that parameters are homogeneous for all countries; MG and CCEMG allow for
heterogeneous parameters among countries, while CCEMG also takes cross-sectional dependence
between countries into account. DOLS is implemented in order to assess to what extent the heterogeneity
and cross-sectional dependence affect coefficient estimations. To our knowledge, this constitutes the first
formal attempt, which uses MG and CCEMG techniques in estimating long-run price and income elasticity
of Turkish exports.
Panel
data methods used in this study necessitate variables to be I(1), i.e. integrated of order 1 and
cointegrated. Unit root tests indicate that country-specific data on exports, real exchange rate and
external income are I(1).3 This permits us to apply cointegration tests, the results of which indicate the
presence of a stable long-term relationship among these variables. 4
Table 1. Estimation Results for Developed and Developing Countries
Income Elasticity
Price Elasticity
DOLS
MG
CCEMG
DOLS
MG
CCEMG
Overall
2.46***
2.43***
2.17***
-0,21**
-0,55**
-0,72***
Developed
3.37***
2.57***
2.56**
-0,11
-0,39**
-0,29
Developing
2.16***
2.25***
1.82***
-0,31*
-0,82
-1,26***
*, **, and *** denote significance at 10 percent, 5 percent and 1 percent, respectively. Dummy variables were included to capture the effects of
the global crisis of 2008 and the European debt crisis of 2011 in MG estimation. All dummy variables are significant at 5 percent.
Table 1 presents the estimation results for the overall sample as well as for the developed and developing
countries. Income and price elasticity coefficients vary among country groups depending on the selected
method of estimation. For example, price elasticity of exports for the developing countries is found to be 0.31 by the DOLS method assuming a homogenous coefficient, while the same elasticity is -0.82 by the MG
method assuming heterogeneity in coefficients. On the other hand, the CCEMG method, which takes into
account the cross-sectional dependence across countries, shows price elasticity to be -1.26. These findings
indicate how results differ when heterogeneity and cross-sectional dependence across countries are not
taken into account. According to the CCEMG results, income and price elasticity of exports for the overall
sample are 2.17 and -0.72, respectively. The income elasticity of exports for developed countries, which is
found to be 2.56, is higher than that for developing countries, which equals 1.82; while the price elasticity of
exports for developing countries, which is estimated as -1.26, is higher than that for developed countries,
which is -0.29. On the other hand, price elasticity of exports for developed countries is found to be
statistically insignificant.
Before conducting unit root tests, cross-sectional dependence tests are conducted as the unit root test results may be affected by heterogeneity
and cross-sectional dependence. The findings indicate the presence of cross-sectional dependence for all variables. The unit root tests developed
by Pesaran (2007) that take cross-sectional dependence into account show that series are not stationary and are integrated of order 1.
4 For further details, see Westerlund (2007).
3
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
Table 2. Estimation Results by Geographical Regions
EU27
Other Europe
Asia
MENA
Income Elasticity
DOLS
MG
2.64***
2.55***
2.74***
3.35***
1.47***
2.14***
1.91***
1.44**
Price Elasticity
DOLS
0.16
-1.30***
-0.12
-0.49**
MG
-0.27**
0.01
-0.12
-1.56*
*, **, and *** denote significance at 10 percent, 5 percent and 1 percent, respectively. Dummy variables were
included to capture the effects of the global crisis of 2008 and the European debt crisis of 2011. All dummy
variables are significant at 5 percent.
Table 2 displays income and price elasticity of exports by geographical regions. Due to low number of cross
sections, which prevents the use of the CCMEG method, the table only reports results pertaining to the
DOLS and MG methods. The estimation results indicate that price and income elasticity coefficients for
Turkish exports vary considerably across geographical regions. MG results suggest statistically significant
income elasticity coefficients in all country groups, while the coefficients are higher for EU27 and other
European countries. On the other hand, price elasticity coefficients are statistically significant for only EU27
and MENA countries. Income elasticities are higher than price elasticities in all country groups except MENA
countries. In other words, Turkish exports are quite sensitive to the income of the destination countries, but
less sensitive to relative price changes. This reveals that income of exporting countries is much more
influential on exports than exchange rate developments. On the other hand, exports to MENA countries are
more sensitive to relative prices.
The
differences in coefficient estimates among country groups are attributed to the dissimilarities in the
composition of exports to these countries. Besides, varying degrees of vertical integration with each country
group as well as distance, cultural proximity and consumer preferences may also play a role in these
differences.
In sum, the empirical findings point out that region-specific measures should be taken into consideration for
designing trade policies. In addition, the sustainability of exports growth is much more dependent on the
income of the trading partners rather than the depreciation of the real exchange rate.
REFERENCES
Baiardi, D., C. Bianchi and E. Lorenzini, 2014, The Price and Income Elasticities of the Top Clothing Exporters:
Evidence From a Panel Data Analysis, DEM Working Paper Series No. 074.
Bahmani-Oskooee, M. and G.G. Goswami, 2004, Exchange Rate Sensitivity of Japan’s Bilateral Trade Flows,
Japan and the World Economy, 16(1): 1-15.
Berument, M.H., N.N. Dinçer and Z. Mustafaoğlu, 2014, External Income Shocks and Turkish Exports: A
Sectoral Analysis, Economic Modelling, 37(2014): 476–484.
Bozok İ., B.D. Şen and Ç. Yüncüler, 2015, Estimating Income and Price Elasticity of Turkish Exports with
Heterogeneous Panel Time-Series Methods, CBRT Working Paper No. 15/26.
Çulha, O.Y. and K. Kalafatcılar, 2014, Türkiye’de İhracatın Gelir ve Fiyat Esnekliklerine Bir Bakış: Bölgesel
Farklılıkların Önemi (in Turkish), CBT Research Notes in Economics No. 14/05.
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Goldstein, M. and M.S. Khan, 1985, Income and Price Effects in Foreign Trade, Handbook of International
Economics, Vol. II, Chapter 20.
Halıcıoğlu, F., 2007, The Bilateral J-curve: Turkey versus Her 13 Trading Partners, MPRA Paper No. 3564.
Kaplan, M. and H. Kalyoncu, 2011, Testing Aggregation Bias for the Impact of Devaluation on the Trade
Balance: An Application to Turkey, Pennsylvania Economic Review, 18(2): 20-34.
Marquez, J., 2005, The Aggregate of Elasticities or The Elasticity of Aggregates: U.S Trade in Services,
International Finance Discussion Papers No. 836.
Pesaran, M.H., 2007. A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence, Journal of
Applied Econometrics, 22(2): 265-312.
Uz, İ., 2010, Determinants of Current Account: The Relation between Internal and External Balances in
Turkey, Applied Econometrics and International Development, 10(2): 115-126.
Westerlund, J., 2007, Testing for Error Correction in Panel Data, Oxford Bulletin of Economics and Statistics,
69(6): 709-74.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
Box
4.3
Use of Leading Indicators in Forecasting Unemployment Rates
The non-farm unemployment rate is an indicator that entails reliable information about the overall tendency
of economic activity. Yet, non-farm unemployment data, which is published within the Household Labor
Force Survey, is released with a three-month lag. This increases the importance of finding an accurate
leading indicator for timely assessment and forecasting of the labor market developments. Following
Gürcihan et al. (2013), this box identifies relevant variables for computing a composite index, which can be
used as a leading indicator for the non-farm unemployment rate in Turkey.
In
constructing the composite index, the aggregate economic activity, labor market conditions,
expectations over future economic activity, credit conditions and variables indicating global economic
trends are taken into account. The variables are selected based on their economic justification, release
frequency (higher frequency), availability (longer duration) and the need for revision (minimal major
backward revision). The series are adjusted for seasonal effects and short-term fluctuations, while extreme
values are excluded. Furthermore, the series are normalized and de-trended from their long-run trend using
the Hodrick-Prescott filter. Gürcihan et al. (2013) find that the out-of-sample forecast criterion out-performs
other methods in variable selection for constructing a composite index to forecast the unemployment rate.
Accordingly, this box uses the out-of-sample forecast performance of the series in measuring their information
value.
Forecast performance of the series is evaluated by comparing the root-mean-squared-error (RMSE) of the
model including the series with that of the baseline model, which is only comprised of the lagged
unemployment term. In other words, in the baseline model, the unemployment rate is explained solely by its
statistically significant lagged values. In the alternative model, the unemployment rate is explained by its
lagged values and also by the candidate series, the forecast performance of which is investigated.
Obviously, the number of lags to be included in the model is determined by the statistical significance.
Employing
the above method, the unemployment rate for the next month is estimated using each
candidate series for all months in the subsequent 12-month period starting from August 2014. Furthermore, the
RMSE for each alternative is computed. Accordingly, Table 1 presents the selected series, which return a
lower RMSE value compared to the baseline model.
Table 1. Selected Variables and their Relative RMSE Values
Relative
RMSE
Relative
RMSE
Kariyer.net Job Posts/Non-Farm Labor Force
0.870
FX Commercial Loans/Nominal GDP
Consumer Confidence Index
0.917
BTS 3-Month-Ahead Employment Expectations
0.981
Domestic VAT/Nominal GDP
0.866
BTS 3-Month-Ahead Expectation of Orders
0.984
0.866
Kariyer.net Applications/Non-Farm Labor Force
VAT on Imports/Nominal GDP
Real Exchange Rate Index for Emerging
Economies
Consumer Loans and Credit Cards/Nominal
GDP
50
0.839
0.915
0.964
Quarterly Change in Consumer Loans/Quarterly Nominal
GDP
Quarterly Change in Mortgage Loans/Quarterly Nominal
GDP
0.951
0.897
0.798
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Series
in Table 1 are later employed to construct the composite index, which is based on the simple
averaging method in accordance with the OECD methodology. In order to represent the labor market
developments, Kariyer.net job posts and applications are included in the index. The consumer confidence
index and the BTS expectation of employment and orders that reveal firms’ expectations are included as
survey indicators. Also, loans are included as a financial market indicator to reflect the financing of the real
sector via markets. In addition, domestic VAT and VAT on imports are added to account for the economic
activity.
Chart 1. Composite Index and Non-Farm Unemployment Rate
Composite Index
Non-Farm Unemployment Rate
0915
0115
0514
0913
0113
97
0512
98
97
0911
98
0111
99
0510
100
99
0909
100
0109
101
0508
101
0907
102
0107
103
102
0506
103
0905
104
0105
104
Source: TURKSTAT, Authors’ calculations.
Chart
1 displays a comparison of the composite index and the unemployment rate. Despite showing
similarities, the two series seem to display occasional differences as the index may underestimate the highrated changes in unemployment rate. In sum, the composite index constructed by the series selected by
their out-of-sample forecast out-performs the baseline model that explains unemployment rate only with its
lagged values.
REFERENCES
Gürcihan, B.Y., G. Şengül and A. Yavuz, 2013, A Quest for Leading Indicators of the Turkish Unemployment
Rate, Central Bank Review, 14(1): 23-45.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
Box
4.4
Projections on Labor Force Participation Rate
This box presents labor force participation rate projections for the Turkish economy during the 2014–2050
period. Labor force participation rate projections are produced by age, gender and education level using
micro data from the Household Labor Force Survey (HLFS) released by the TURKSTAT. The study employs the
HLFS data for the 2004–2013 period in addition to the population projections from 2014 to 2050 produced by
the TURKSTAT.
TURKSTAT population projections suggest that the aging rate and age distribution of the Turkish population
will exhibit considerable changes from 2014 to 2050. Within the total population, the share of the population
between 15 and 64, considered as the working age, is expected to fall by around 5 points to 63.4 percent;
while the share of the population aged 65 and above is envisaged to rise by 13 points to 20.8 percent until
2050. Concentration of the labor force participation rate of the population at lower age groups may pose
a downside risk to the total labor force participation rate. Thus, taking into account this projected change in
the demographic structure is considerably important to the labor force participation rate projections.
Moreover, the fact that the average retirement age, which was 51 in 2013, will be raised gradually to 65 in
the upcoming years is also taken into consideration in this box.
Another factor to be considered when making labor force participation rate projections is the education
level of individuals as a measurement of human capital accumulation. According to the data from 2013,
the labor force participation rate of university graduates is around 80 percent, while that of individuals with
high school and lower education level is 46.7 percent. Given this difference, a rise in the education level
can push the labor force participation rate up across the country. With a continued increase in the
education level, the university graduation rate in Turkey is expected to catch up with that of developed
countries over time.
The
analyses are based on the population projections produced under the baseline scenario by the
TURKSTAT. The baseline scenario assumes that the total fertility rate per woman, which was around 2 in 2013,
will naturally fall to 1.85 in 2023 and 1.65 in 2050. Accordingly, it is expected that total population in Turkey
will increase further, yet at a decelerating pace (Chart 1).
The median age, which was 30.4 in 2013, is predicted to rise to 34 in 2023. The Turkish labor market will be
one of the most affected areas by the aging of the population. The share of the population of the working
age within the total population is anticipated to post a mild increase in the 2013–2023 period, but decline
by around 5 points up to 2050 (Chart 2). This projection mainly relies on the decline in the share of individuals
between the ages of 25-49 with a higher labor force participation rate within the total population. On the
other hand, it should be noted that the share of individuals between 50-64 ages with a lower labor force
participation rate is expected to rise within the total population. In addition, the share of the population
aged 65 and above is expected to rise by around 13 points.
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Chart 2. Distribution of the Population by Age Groups
Chart 1. Population Projections by Age Groups
(Percent of the Total Population)
0-14 (percent of the total population)
65+ (percent of the total population)
Total (million people, right axis)
30
95
90
25
15-64
15-24 (right axis)
25-49 (right axis)
50-64 (right axis)
70
40
35
68
30
85
66
20
25
80
20
64
15
75
15
70
2050
2047
2044
2041
2038
2035
2032
2029
2026
2023
2020
2017
2014
2011
65
2008
5
62
10
60
5
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
10
Source: TURKSTAT, Authors’ calculations.
The analysis is based on annual data. First, individuals aged 15 and above are retrieved from the HLFS and
categorized by age groups of five years in each survey period.5 These age groups are also classified by
gender. At this point, the university graduation rate is calculated for all the above clusters, which are
categorized by age groups and gender (Ceritoğlu and Eren, 2015).6 Accordingly, university graduation
rates for males are females are estimated to reach 25.7 percent and 23 percent, respectively in 2050. Total
university graduation rate is expected to register a stable growth and hit 24.4 percent in 2050 (Chart 3).
Labor
force participation rate projections are produced by classifying individuals according to age,
gender and education levels. The education level of individuals is analyzed in two categories as university
graduates and individuals with education levels of high school and below.7 Then, labor force participation
rate projections are produced separately for each cluster (Chart 4). Forecasts produced for each cluster
are weighted with their shares in the TURKSTAT population projections, which yields projections for Turkey
overall (Ceritoğlu and Eren, 2015). In the upcoming years, the rate of individuals between 15 and 24 ages
enrolled in the formal education system is expected to increase in Turkey. As a result of increases in the
schooling rate, the labor force participation rate of individuals in this age range will be pressured
downwards.
Labor force participation preferences are analyzed by dividing individuals into 11 age groups as 15-19, 20-24, 25-29, 30-34, 35-39, 40-44, 45-49, 5054, 55-59, 60-64 and 65+.
6 For every age and gender group, HLFS 2004 – 2013 realizations and the university graduation rates are separately estimated by power functions.
7 In this study, university graduates imply undergraduates (2, 3 or 4-year college graduates) as well as individuals having obtained a graduate
degree. Likewise, high school graduates denote individuals with high school diploma or lower education levels.
5
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Central Bank of the Republic of Turkey
Chart 3. University Graduation Rates
Chart 4. Labor Force Participation Rate
(Aged 15 and above, Percent)
(Aged 15 and above, Percent)
Male
Total
Total
Female
28
Female
Male (right axis)
65
28
73.0
25.7
60
24.4
24
72.5
24
55
23.0
20
50
20
72.0
45
16
71.5
16
40
12
35
12
71.0
30
8
70.5
8
25
2050
2047
2044
2041
2038
2035
2032
2029
2026
2023
2020
2017
2014
2008
70.0
2011
20
4
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
4
Source: TURKSTAT, Authors’ calculations. Readings in the shaded area denote actual values.
On
account of the social security reform, the average retirement age is anticipated to gradually
approach 65 until 2050. Accordingly, the labor force participation rate of individuals in the 50-64 age range
is assumed to increase linearly. Moreover, the labor force participation rate of high school graduate
females is expected to record a steady increase by starting from a low level and approach the developed
country averages afterwards. In this context, high school graduate females are anticipated to provide
higher contribution to the expected increase in the labor force participation rate in Turkey in the upcoming
years (Table 1).
Table 1. Labor Force Participation Rate Projections by Age Groups (Percent)
Male
2013
2025
2030
2035
2040
2045
2050
Female
Total
15-24
25-49
50-64
Total
15-24
25-49
50-64
Total
15-24
25-49
50-64
Total
53.6
53.4
53.7
53.2
52.9
52.7
52.6
93.0
94.0
94.3
94.6
94.8
94.9
95.0
57.0
67.2
72.5
76.3
80.1
84.4
88.1
71.1
71.7
71.7
71.8
71.7
71.6
71.4
27.9
32.2
34.1
35.6
37.0
38.6
40.2
40.6
56.4
62.1
67.5
72.5
77.2
81.0
22.0
33.3
39.2
44.0
49.0
53.8
58.7
30.5
39.8
42.9
45.7
48.0
50.0
51.5
41.0
43.0
44.2
44.6
45.2
45.8
46.5
67.1
75.4
78.4
81.2
83.8
86.2
88.2
39.4
50.2
55.8
60.1
64.6
69.1
73.4
50.7
55.6
57.2
58.7
59.8
60.7
61.3
Source: TURKSTAT, Authors’ calculations.
Under
the alternative scenario, which assumes that the distribution of the population by age remains
unchanged at 2013 levels, the male labor force participation rate will hit 77.9 percent rather than 71.4
percent in 2050. Moreover, under the same assumption, the total labor force participation rate will increase
to 68.9 percent rather than 61.3 percent in 2050. The alternative scenario clearly reveals the strong and
adverse effect of the aging of the population on the labor force participation rate.
In sum, this box estimates male, female and total labor force participation rates for Turkey for the 2014–2050
period. Total labor force participation rate is expected to rise in the upcoming years, but at a decelerating
pace owing to the aging of the population. This effect is more evident for males, causing a decline in the
labor force participation rate.
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Lastly, a deceleration or acceleration in the fertility rate in the upcoming years may cause a change in the
demographic structure, which may affect the total labor force participation rate. Particularly, a larger-thanexpected decline in the fertility rate might lead to a lower total labor force participation rate due to faster
aging of the population.
REFERENCES
Ceritoğlu, E. and O. Eren, 2015, İşgücüne Katılım Oranı Öngörüleri (in Turkish), CBT Research Notes in
Economics No. 07/15.
Inflation Report 2015-IV
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5. Financial Markets and Financial Intermediation
The third quarter of 2015 was marked by heightened volatility in financial markets largely due to
signals of a global economic slowdown driven by the Chinese economy and mounting uncertainties
over the Fed’s monetary policy actions. Lowered global growth expectations and the deteriorated risk
sentiment
affected
mostly
commodity-exporting
and
external-finance-dependent
emerging
economies in the form of accelerated capital outflows. In this period, in addition to external
developments, Turkish markets also faced volatility due to domestic uncertainties and geopolitical
tensions. These developments affected short to medium-term perceptions over Turkey considerably,
yet the deterioration in long-term financial indicators remained relatively limited.
The Fed’s September decision to hold off rate hikes and the weaker-than-expected US
economic activity indicators pushed markets’ rate rise bets into the spring of 2016, helping the financial
market indicators to start recovering since the end of the third quarter. In this period, falling commodity
prices also continued to have positive implications for economic activity and the current account
deficit, improving the risk sentiment towards Turkey.
The FCI for Turkey tightened notably in the third quarter (Chart 5.1). All financial variables in the
index, especially loan standards and loan rates, caused tightening in financial conditions (Chart 5.2).
Against this backdrop, domestic loan growth is expected to slow further over the remainder of the
year. Thanks to the recent improvement in the global risk appetite and the decline in negative
perceptions of domestic risks, the tightening of financial conditions is less likely to deepen, but
uncertainties hang over global markets.
Chart 5.1.
Chart 5.2.
Financial Conditions and Credit Growth*
Contributions to FCI**
EMBI
Slope of the Yield Curve
Benchmark Rate
Capital Flows
tightening
easing
FCI (standardized)
Net Credit Use/GDP (annual, percent, right axis)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
14
12
Loan Rate
Exhange Rate
Loan Standards
Stock Return
3
3
2
2
6
1
1
4
0
0
-1
-1
-2
-2
-2
-4
-3
10
8
2
0
1234123412341234123412341234123
2008
2009
2010
2011
2012
2013
-3
1234123412341234123412341234123
2014 2015
2008
2009
2010
2011
2012
2013
2014 2015
* For further details on measuring FCI, see the CRBT Working Paper No. 15/13.
** Slope of the yield curve is measured by the spread between 10-year and 2-year interest rates.
Source: CBRT.
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Central Bank of the Republic of Turkey
5.1. Financial Markets
Global Risk Perceptions
The uncertainty over global monetary policies continued into the third quarter of 2015. In
particular, the timing of the Fed’s first policy rate hike was one of the major concerns dominating
global markets. The US economic data emitted mixed signals in this reporting period as the US
economy grew by a surprisingly high 3.7 percent in the second quarter, while unemployment and
inflation data were lower than expected. The Fed’s statement to postpone the first rate hike until
inflation moves back to its 2-percent objective and its emphasis on the global economic slowdown
shifted expectations of a policy rate hike to 2016. Therefore, rates on 10-year US Treasury bonds have
dropped as of September (Chart 5.1.1). The Fed’s focus on the path and the pace of the process
rather than the timing of the first rate hike fed into the expectations that the policy rate increase will be
slow and gradual, which in turn alleviated the interest rate volatility.
In the Euro area, the economy grew by a mere 0.4 percent in the second quarter and the fall in
inflation was driven by energy prices; however, the ECB announced that the asset purchase program
might be extended beyond September 2016 to ensure a sustained return of inflation to a level close to
2 percent. In this period, China’s sluggish economic activity, the Chinese stock market crash and the
devaluation of the Chinese renminbi against the US dollar were the major factors feeding into the
global market uncertainty. Thus, the emerging market exchange rate volatility posted a remarkable
increase in the inter-reporting period (Chart 5.1.2).
Chart 5.1.1.
Chart 5.1.2.
10-Year US Treasury Bond Rates and MOVE Index
JPMVXYEM Volatility Index
(Percent)
10-Year US Treasury Bond Rates
14
14
13
13
12
12
11
11
90
10
10
80
9
9
8
8
7
7
6
6
50
5
5
40
4
4
120
110
3.0
100
2.5
2.0
70
60
1.5
1015
0715
0415
0115
1014
0714
0414
0114
1013
0713
0413
0113
1.0
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
0315
0515
0715
0915
MOVE Index (right axis)
3.5
Source: Bloomberg.
Spillovers from the Chinese economy, lower-than-expected growth rates across emerging
economies and geopolitical tensions caused the global risk appetite to stand at low levels while the
EMBI and the CDS premiums of emerging economies rose dramatically. Yet, with hopes of a Fed rate
hike pushed into 2016, risk premium indicators posted some decrease recently (Charts 5.1.3 and 5.1.4).
Likewise, after soaring markedly in the inter-reporting period, risk premium indicators for Turkey
experienced a recent fall.
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Chart 5.1.3.
Chart 5.1.4.
Regional EMBI Indices
Changes in CDS*
(Basis Points)
(Basis Points)
EMBI Europe
EMBI Turkey
EMBI Asia
Turkey
Emerging Economies
Selected Emerging Economies
EMBI Latin America
650
650
200
600
600
180
180
550
550
160
160
500
500
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
350
1015
0915
-20
0815
100
0715
100
-20
0615
150
0515
150
0415
200
0215
0315
200
0115
250
1214
250
1114
300
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
0315
0515
0715
0915
300
0714
350
1014
400
0914
450
400
0814
450
200
* Emerging economies include Brazil, Chile, Colombia, Hungary,
Indonesia, Mexico, Poland, Romania and South Africa. Selected
emerging economies are Brazil, Indonesia and South Africa. Denotes
changes since 24 July 2014.
Source: Bloomberg.
Source: Bloomberg.
Portfolio Flows
In line with the above global developments, emerging economies saw portfolio outflows in the
third quarter of 2015. As for capital flows to emerging economies, Asian-oriented funds led to a sharp
fall in stock inflows. Overall, most of the portfolio outflows in this period were driven by the US rebound,
mounting concerns over a continued Chinese slowdown and the lower-than-expected growth rates
across emerging economies (Charts 5.1.5 and 5.1.6).
Chart 5.1.5.
Chart 5.1.6.
Portfolio Flows to Emerging Economies
Cumulative Portfolio Flows to Emerging Economies
(Billion USD)
-5
-10
-15
-15
-20
-20
0915
0715
0515
0315
0115
1114
-40
0914
-35
-40
0714
-35
0514
-30
0314
-25
-30
0114
-25
0
-20
-20
-40
-40
2014
-60
2015
-60
-80
-80
December
-5
-10
0
November
0
20
October
0
20
August
5
September
10
5
40
2008-2014
Average
July
10
40
June
15
May
15
April
20
March
Equities
January
Bonds
20
February
(Billion USD, 4-Week Cumulative)
Source: EPFR.
Due to weakening capital flows into emerging economies and domestic uncertainty, Turkey has
seen portfolio outflows since July while portfolio inflows have differed significantly from the average of
previous years (Charts 5.1.7 and 5.1.8).
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
Chart 5.1.7.
Chart 5.1.8.
Portfolio Flows to Turkey*
Cumulative Portfolio Flows to Turkey*
(Billion USD, 4-Week Cumulative)
(Billion USD)
Bonds
4
Equity
4
3
3
9
9
2008-2014
Average
7
7
5
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
5
2014
3
3
1
1
-1
2015
-3
-3
December
October
November
September
July
August
May
June
April
March
February
-5
January
-5
0915
0715
0515
0315
0115
1114
0914
0714
0514
0314
0114
-1
* Excludes repo.
Source: CBRT.
Exchange Rates
Amid lower global risk appetite and higher sovereign risk premiums driven by expectations of a
policy rate hike by the Fed and volatile Chinese stock markets, emerging market currencies
depreciated against the USD in the inter-reporting period (Chart 5.1.9). Some of the losses were
recouped by the improving global risk appetite thanks to sentiments for a delayed rate hike due to the
recent worse-than-expected US non-farm payroll numbers. The Turkish lira followed a pattern similar to
other emerging market currencies in the third quarter. The currency basket rose on par with increasing
risk premiums. After equaling 2.92 on 30 July 2015 when the July Inflation Report was published, the
currency basket hovers around 3.05 as of 26 October 2015 (Chart 5.1.10).
Chart 5.1.9.
Chart 5.1.10.
TL and Emerging Market Currencies vs USD*
Currency Basket and the Risk Premium
(31.10.2014=1)
(Percent)
Currency Basket (0.5 USD+0.5 euro)
Emerging Economies
EMBI+Turkey (right axis)
1.45
Selected Emerging Economies
1.45
3.3
1.40
Turkey
1.40
3.2
340
3.1
320
3.0
300
2.9
280
2.8
260
1.35
1.35
1.30
1.30
1.25
1.25
1.20
1.20
360
* Emerging economies include Brazil, Chile, Colombia, Czech Republic,
Hungary, Mexico, Poland, Romania, South Africa, India, Indonesia and
Turkey. Selected emerging economies are Brazil, Indonesia and South
Africa.
Source: Bloomberg.
1015
0915
0815
0715
0615
0515
0415
0315
0215
0115
1214
1114
180
1014
2.4
0915
0.95
0815
200
0.95
0715
2.5
0615
1.00
0515
220
1.00
0415
2.6
0315
1.05
0215
240
1.05
0115
2.7
1214
1.10
1114
1.15
1.10
1014
1.15
Source: Bloomberg.
In line with third-quarter developments, implied exchange rate volatilities of emerging market
currencies posted an upsurge. The implied volatility of the Turkish lira followed a path similar to other
emerging market currencies, rising both in short and long terms from the previous period (Chart 5.1.11).
Yet, the implied volatility of the Turkish lira recorded some decrease on the back of the recently
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improving global risk appetite. The early third-quarter exchange rate depreciation was also evident in
risk reversal positions that denote the spread among the volatilities implied by buy (call) and sell (put)
options. A widening spread means that expectations of depreciation outweigh those for an
appreciation. However, thanks to the recent recovery in exchange rates, risk reversal positions also
displayed some decreases (Chart 5.1.12.)
Chart 5.1.11.
Chart 5.1.12.
Implied Volatility of Exchange Rates*
25 Delta Risk Reversal Positions at Various
Maturities*
(1-Month-Ahead)
(5-Day Moving Average, Percent)
1015
3.1
3
2.9
2.8
2.7
2.6
2.5
2.4
2.3
2.2
2.1
2
1.9
1.8
1.7
0715
0114
1113
0913
0713
* Emerging economies with current account deficit include Brazil, Chile,
Colombia, Czech Republic, Hungary, Indonesia, Mexico, Poland,
Romania, South Africa and India.
Source: Bloomberg.
0415
0
0115
1
3
1014
6
3
0414
6
0114
2
1013
3
9
0713
12
9
0413
12
0915
4
0715
5
15
0515
18
15
0315
18
0115
6
1114
7
21
0914
24
21
0714
24
0514
8
0314
27
27
1-Month
3-Month
1-Year
USD/TL (right axis)
Turkey
0714
Emerging
Economies
with Current
Account
Deficit
* Risk reversal position denotes the difference between implied
volatilities of call and put options with the same delta. An increase
indicates that depreciation is more likely than an appreciation in TL.
Source: Bloomberg, CBRT.
Monetary Policy
The CBRT released a road map on 18 August 2015 for the policies to be implemented before
and during the normalization of global monetary policies. Thus, adjustments were made to interest rate,
Turkish lira liquidity, foreign exchange liquidity and financial stability policies, which will be implemented
before and during the normalization. Accordingly, the interest rate and TL liquidity policies were
simplified; quotation on the interest rate on borrowing facilities provided for primary dealers was
terminated; and collateral conditions were made simpler. Moreover, it was announced that the interest
rate corridor will be more symmetric around the one-week repo interest rate and the width of the
corridor will be narrowed following the global monetary normalization. The CBRT also stated that it
would take some measures to enhance the flexibility of the foreign exchange liquidity policy and
additional measures to bolster core liabilities and long-term borrowing as measures to support financial
stability before and during the global monetary policy normalization.
In its presentation on 16 September 2015, the “Briefing on Simplification of the Collateral
Framework and Changes in the Primary Dealer Liquidity Facility”, the CBRT announced the changes in
the Turkish lira liquidity policy. Accordingly, starting from 23 September 2015, instead of offering a
favorable interest rate on borrowing facilities, the primary dealership system would be supported by
allocating higher bid limits at one-week quantity repo auctions to primary dealers without changing
the CBRT funding cost. In addition, as of 28 September 2015, collateral conditions for Turkish lira
transactions were simplified. Accordingly, haircut rates were equalized for all tranches; the number of
haircut ratios for Turkish Lira collaterals was reduced from 13 to 2 while the number of haircut ratios for
Inflation Report 2015-IV
61
Central Bank of the Republic of Turkey
FX collaterals was reduced from 18 to 3. Moreover, in terms of FX deposits as collateral for TL operations,
this facility was accepted at only 1-month tenor; the interest rate on these FX deposits would be
announced; and for each bank, a specific upper limit would be applied to the FX deposit that is
pledged as collateral within the CBRT. Effective 28 September 2015, all these changes aim to enhance
banks’ liquidity management.
The CBRT maintained its tight monetary policy stance in the third quarter of 2015 to help core
inflation remain less affected by the cumulative exchange rate changes since early 2015. In this period,
the CBRT kept the one-week repo auction rate at 7.5 percent, the overnight lending rate at 10.75
percent, and the overnight borrowing rate at 7.25 percent. One-week repo auctions remained the
leading tool for the CBRT funding, while the share of the marginal funding was raised gradually
(Chart 5.1.13). Accordingly, the average funding rate settled at a higher level compared to the
previous reporting period. The average funding rate, which was 8.5 percent in the July reporting
period, rose to about 8.75 percent in the third quarter. Moreover, the interbank overnight repo rates
were kept at the upper band of the interest rate corridor in this quarter as well (Chart 5.1.14). Future
monetary policy decisions will be conditional on the inflation outlook. Inflation expectations, the pricing
behavior and other factors that affect inflation will be monitored closely and the tight monetary policy
stance will be maintained as long as deemed necessary.
Chart 5.1.13.
Chart 5.1.14.
CBRT Funding
CBRT Rates and BIST Repo Rates
(10-Day Moving Average, Billion TL)
(Percent)
30
20
20
10
10
0
0
1015
0815
0615
0415
0215
1214
1014
0814
0614
0414
0214
1213
-10
1013
-10
8
6
6
4
4
2
2
1015
30
8
0815
40
0615
50
40
10
0415
50
10
0215
60
12
1214
60
12
1014
70
0814
80
70
0614
80
14
0414
90
0214
100
90
1213
100
Interest Rate Corridor
CBRT Average Funding Rate (5-day moving average)
BIST O/N Repo Rates (5-day moving average)
1-Week Repo Rate
14
1013
Marginal Funding
O/N Funding
One-Week Repo
1-Month Repo
Reverse Repo at the BIST and Interbank Money Market
Net Open Market Operations
Source: BIST, CBRT.
In addition to funds provided by the CBRT, short-term funds provided from various markets also
play a significant role in meeting the Turkish lira liquidity requirement of the banking system. Market
funding is mostly provided via swap markets with up to one-week maturity. These are followed by funds
transacted under the BIST Interbank Repo and Reverse Repo Market and those which are exchanged
by intermediaries under the BIST Repo and Reverse Repo Market (Chart 5.1.15). The average cost of
non-CBRT funds was higher than the marginal funding rate, causing non-CBRT market funding to
decline since the previous reporting period (Chart 5.1.16). The effective funding rate calculated by the
weights of CBRT and non-CBRT funds in total funds was around 9.4 percent in October.
62
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 5.1.15.
Chart 5.1.16.
Market Funding
Bank’s Funding Costs at the Money Markets
(10-Day Moving Average, Billion TL)
(5-Day Moving Average, Percent)
Interest Rate Corridor
CBRT Average Funding Rate
BIST O/N Repo Rates
Money Market Weekly Effective Funding Rate
Money Market Weekly Effective Funding Rate (excl. CBRT funding)
BIST Interbank (excl. CBRT, O/N)
BIST Repo and Reverse Repo (O/N)
Swap (up to 1-week maturity )
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
14
14
12
12
10
10
8
8
6
6
4
4
2
2
1013
1113
1213
0114
0214
0314
0414
0514
0614
0714
0814
0914
1014
1114
1214
0115
0215
0315
0415
0515
0615
0715
0815
0915
1015
1013
1113
1213
0114
0214
0314
0414
0514
0614
0714
0814
0914
1014
1114
1214
0115
0215
0315
0415
0515
0615
0715
0815
0915
1015
80
Source: BIST, CBRT.
The spread between 5-year market rates and the BIST overnight repo rates hovered around zero
as of October 2015 (Chart 5.1.17). The yield curve hardly changed and remained nearly horizontal in
this period (Chart 5.1.18).
Chart 5.1.17.
Chart 5.1.18.
Market Rates
Yield Curve
(Percent)
(Percent)
29 July 2015-26 October 2015
1-26 October 2015
0
-2
-2
-4
-4
10.0
10.0
9.5
9.5
9.00
2
0
10.5
10.00
2
10.5
8.00
4
7.00
6
4
11.0
5.00
6
11.0
4.00
8
3.00
10
8
2.00
10
11.5
1.00
12
0711
0911
1111
0112
0312
0512
0712
0912
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
0315
0515
0715
0915
12
11.5
0.50
14
0.25
14
5-Year Market Rates-BIST O/N Rates
BIST O/N Rates (5-day moving average)
5-Year Market Rates
Maturity (year)
Source: Bloomberg, CBRT.
Source: Bloomberg.
Besides interest rate and liquidity policies, the CBRT continues to employ other policy instruments
to support financial stability. These measures aim at limiting macrofinancial risks and contributing to a
balanced growth by promoting prudential borrowing. In the first quarter of 2015, to encourage the
extension of maturities, the CBRT had raised the required reserve ratios applied to non-core short-term
FX liabilities of banks and financing companies. On 29 August 2015, the CBRT announced that required
reserve ratios for new non-core FX liabilities after 28 August 2015 would be revised to encourage
maturities of longer than three years (Chart 5.1.19). This change seems to have supported the extension
of maturities for non-core FX liabilities since November 2014 (Chart 5.1.20). In a second announcement
on 29 August 2015, the CBRT raised the remuneration rate for the TL required reserves by 50 basis points
each in September, October and December. This adjustment aimed at reducing intermediation costs
of the banking sector and supporting core liabilities. In fact, the loans-to-deposits ratio has settled on a
relatively more stable track since the introduction of these measures in November 2014 (Chart 5.1.21).
Inflation Report 2015-IV
63
Central Bank of the Republic of Turkey
Chart 5.1.19.
Chart 5.1.20.
FX Required Reserve Ratios
Non-Deposit FX Liabilities by Maturity
(Percent)
(Percent)
30
30
7 June 2013
Announcement of Required Reserve
Measures in the Financial Stability
Report
60
27 February 2015
25
25
27 March 2015
23 October 2015
55
55
<1-Year
50
20
20
15
15
60
50
45
45
>3-Year
40
40
10
10
35
35
5
5
30
30
25
25
0
1-year
2-year
3-year
5-year
0114
0214
0314
0414
0514
0614
0714
0814
0914
1014
1114
1214
0115
0215
0315
0415
0515
0615
0715
0815
0915
0
>5-year
Source: CBRT.
In the road map regarding the steps to be taken during the normalization of global monetary
policies, the CBRT also included some measures to enhance the flexibility of the foreign exchange
liquidity management. To this end, transaction limits for banks at the CBRT Foreign Exchange and
Banknotes Markets were raised by around 130 percent to 50 billion USD on 1 September 2015.
Consequently, the sum of deposit limits allocated to banks and gold and foreign exchange assets held
at the CBRT under the ROM reached a level that is considerably above the external debt payments of
banks, which are due within the year. Moreover, the CBRT announced that because of the increased
volatility in global financial markets, as of 19 August 2015, the amount of the foreign exchange sales
auction may be increased by up to 70 million USD above the pre-announced minimum amount.
Accordingly, the CBRT maintains the stabilizing stance regarding the foreign exchange liquidity.
Chart 5.1.21.
Chart 5.1.22.
Loans/Deposits
CBRT FX Reserves*
(Percent)
(Billion USD)
FX Required Reserves
Announcement of Required
Reserve Measures in the
Financial Stability Report
Gold ROM
40
80
80
20
20
70
70
0
0
0915
0615
140
0315
1214
40
0914
60
90
0614
60
90
0314
80
100
1213
80
100
0913
100
0613
100
0313
110
1212
110
0912
120
0612
120
0312
120
1211
120
0911
140
Source: CBRT.
64
Other Gold Reserves
Precious Metal
130
0110
0510
0910
0111
0511
0911
0112
0512
0912
0113
0513
0913
0114
0514
0914
0115
0515
0915
130
Other FX Reserves
FX ROM
* As of 23 October 2015.
Source: CBRT.
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
The CBRT reserves were slightly down in the inter-reporting period (Chart 5.1.22). In this period,
the CBRT’s other FX reserves declined due to the above FX selling auctions supporting the FX liquidity,
which, however, was offset by rising reserves maintained by banks under the FX required reserves. The
amount maintained by banks within the ROM was kept unchanged. The use of ROM by financial
institutions remained high in the second quarter and stood at 96.1 percent (57.7/60) for FX and 94
percent (28/30) for gold by the maintenance period of 9 October 2015.
The CBRT sold 18.9 billion USD from early 2015 to 22 October 2015 via FX selling auctions and
direct FX sales to energy-importing SEEs. In the same period, the FX obtained through rediscount credits
amounted to 12.7 billion USD. Continuing with FX selling auctions and direct FX sales to energyimporting SEEs in the upcoming period will bring the CBRT’s FX reserves down; yet, export rediscount
credits will drive these reserves higher.
In sum, in view of the current global and domestic conditions, the CBRT’s monetary policy
stance is tight against the Turkish lira, stabilizing for the FX liquidity, and supportive of financial stability.
Market Rates
In the beginning of the third quarter, the rising sovereign risk premiums and the weak and
volatile capital inflows caused market rates to increase moderately in emerging economies. October’s
improved global risk appetite partially offset the increase in market rates (Charts 5.1.23 and 5.1.24). In
this period, Turkey’s market rates were also on the rise due to global developments as well as domestic
uncertainties and heightened geopolitical tensions. Amid recent expectations of a delayed Fed rate
hike, the improved global outlook for emerging economies helped reduce rates slightly in Turkey. On a
country level, thanks to the recent recovery, Turkey recorded a modest change in 5-year and 6-month
market rates compared to the previous reporting period (Charts 5.1.25 and 5.1.26).
Chart 5.1.23.
Chart 5.1.24.
5-Year Market Rates*
6-Month Market Rates*
(Percent)
(Percent)
Brazil
India
Turkey
South Africa
Indonesia
Brazil
India
Turkey
South Africa
Indonesia
17
17
16
16
16
16
15
15
15
15
14
14
13
13
12
12
14
14
13
13
11
11
12
12
10
10
11
11
9
9
10
10
8
8
7
7
6
6
0915
0715
0515
0315
0115
1114
0914
0714
0514
0314
0114
1113
0913
0713
0915
0715
0515
3
0315
3
0115
6
1114
4
6
0914
4
0714
7
0514
5
7
0314
5
0114
8
1113
8
0913
9
0713
9
* As of 26 October 2015. 4-year market rates are used for Brazil.
Source: Bloomberg.
Inflation Report 2015-IV
65
Central Bank of the Republic of Turkey
Chart 5.1.25.
Chart 5.1.26.
5-Year Market Rates*
6-Month Market Rates*
3.5
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
Brazil
Colombia
Peru
Indonesia
Malaysia
Chile
Turkey
Thailand
South Africa
South Korea
China
Poland
Czech Republic
Mexico
India
Hungary
Romania
3.0
(Percent)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
Peru
Colombia
Indonesia
Chile
Brazil
China
Thailand
South Korea
Poland
Turkey
South Africa
Mexico
Malaysia
Romania
Czech Republic
Hungary
India
(Percent)
3.5
* Denotes changes from 31 July 2015 to 26 October 2015. 4-year market rates are used for Brazil.
Source: Bloomberg.
Thanks to the CBRT’s cautious monetary policy stance backed by a tight liquidity policy
throughout 2015, the BIST overnight repo rates remained close to the upper band of the interest rate
corridor in the third quarter (Chart 5.1.14). Thus, due to the cautious monetary policy stance and the
decision to remain watchful of the Fed’s policy actions during the monetary normalization, the median
of the expected overnight rate distribution at the BIST Repo and Reverse Repo Market shifted slightly
right (Chart 5.1.27). Meanwhile, inflation expectations, which are influential in long-term market rates,
were higher than in July (Chart 5.1.28).
Chart 5.1.27.
Chart 5.1.28.
Expected Overnight Rates at the BIST Repo and
Reverse Repo Market* (Percent)
Inflation Expectations*
July 2015
0.9
(Percent)
July 2015
October 2015
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
October 2015
8.4
8.4
8.25
8.0
8.0
7.71
7.6
7.6
7.34
7.2
7.2
7.05
6.88
0.2
0.2
0.1
0.1
6.8
6.69
0
* CBRT Survey of Expectations.
Source: CBRT.
1217
1017
0817
0617
0417
6.4
0217
6.4
1216
14
1016
13
0816
12
0716
11
0516
10
0316
9
1115
8
0116
0
6.8
* End of current month, current year-end, 12-month-ahead and 24-monthahead policy rate expectations derived from the CBRT Survey of
Expectations.
Source: CBRT.
In the third quarter of 2015, real rates in Turkey displayed a rise, which was followed by a fall.
Despite the uptick in 2-year inflation expectations, the movement in nominal interest rates was more
pronounced, dominating the third-quarter pattern of 2-year real rates (Chart 5.1.29). Meanwhile,
having fallen after a rise, the benchmark rate was on par with Turkey’s sovereign risk premium through
the third quarter. Despite the recent minor declines, Turkey’s 2-year real rates ranked higher among
emerging economies (Chart 5.1.30).
66
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 5.1.29.
Chart 5.1.30.
2-Year Real Interest Rates for Turkey*
2-Year Real Interest Rates*
(Percent)
(Percent)
Real Interest Rate
12
4
11
3
10
2
9
1
8
7
-1
6
10
9
9
7
7
6
6
4
4
3
3
1
1
-1
-1
-2
-2
0114
0214
0314
0414
0514
0614
0714
0814
0914
1014
1114
1214
0115
0215
0315
0415
0515
0615
0715
0815
0915
1015
0
10
Brazil
Indonesia
Turkey
India
Colombia
Peru
Romania
South Africa
Poland
China
Philippines
Thailand
Mexico
Malaysia
South Korea
Chile
Hungary
Israel
Czech Republic
Benchmark Rate (right axis)
5
* Calculated as the difference between 2-year market rates and the 24month-ahead inflation expectations derived from the CBRT Survey of
Expectations.
Source: Bloomberg, BIST, CBRT.
* Calculated as the difference between 2-year Treasury bond yields of
countries and the 24-month-ahead inflation expectations derived from
the Consensus Forecasts.
Source: Bloomberg, Consensus Forecasts, CBRT
Loan Rates and Banking Sector Funding Costs
Having remained flat in the first quarter of 2015 and recording an uptick in the second quarter,
rates on loans extended to the non-financial sector continued to rise in the third quarter. Among
consumer loans, mortgage loan rates soared by about 160 basis points quarter-on-quarter, while rates
on personal loans and automobile loans jumped by 130 and 175 basis points, respectively
(Chart 5.1.31). Up by around 210 basis points, commercial loan rates rose at a faster pace than
consumer loan rates in this period. Likewise, commercial loan rates excluding overdraft accounts
surged by about 200 basis points (Chart 5.1.32). This third-quarter upturn in loan rates is consistent with
the Loan Tendency Survey’s prediction of tighter domestic and external financing conditions.
Chart 5.1.31.
Chart 5.1.32.
Consumer Loan Rates
TL Commercial Loan Rates
(Flow, Annualized, Percent)
(Flow, Annualized, 4-Week Moving Average, Percent)
Commercial Loan Rate
Commercial Loan Rate (excl. overdraft accounts)
Mortgage
5
5
0815
8
0215
0515
8
1114
11
0814
11
0214
0514
14
1113
14
0813
17
0213
0513
17
1112
20
0812
20
0212
0512
7
0715
7
0315
9
1114
9
0714
11
0314
11
1113
13
0713
13
0313
15
1112
15
0712
17
0312
17
1111
19
0711
19
0311
21
1110
21
1111
Automobile
Personal
Source: CBRT.
Rates on deposits with maturities shorter than three months, which are the primary financing
resources of the banking sector, rose by 50 basis points quarter-on-quarter owing to the CBRT’s tight
liquidity stance and rising weighted funding costs in this quarter. As commercial loan rates soared more
than deposit rates in the third quarter, the spread between commercial loan rates and deposit rates
widened over 500 basis points after a long time (Chart 5.1.33). The weak and fluctuating fund flows
Inflation Report 2015-IV
67
Central Bank of the Republic of Turkey
towards emerging economies also affected rates on bills and bonds issued by banks. After increasing
by around 100 basis points at the end of the second quarter due to a weak performance, rates on bills
and bonds edged down in mid-third quarter but accelerated again in September and ended the third
quarter at 11.2 percent (Chart 5.1.34).
Chart 5.1.33.
Chart 5.1.34.
TL Commercial Loan Rate and Deposit Interest Rate
Indicators on Banks’ Funding Costs
(Flow, Annualized, 4-Week Moving Average, Percent)
TL Deposit Interest Rate
Bills and Bonds Rate
TL Commercial Loan Rate
Deposit Interest Rate
CBRT Average Funding Rate
TL Commercial Loan Rate-TL Deposit Interest Rate (right axis)
17
15
13
11
9
7
6.5
12
13
6.0
11
12
5.5
10
11
5.0
9
4.5
8
4.0
7
3.5
6
3.0
5
5
4
4
3
3
2.5
2.0
9
8
7
6
0112
0312
0512
0712
0912
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
0315
0515
0715
0915
0112
0312
0512
0712
0912
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
0315
0515
0715
0915
5
10
Source: CBRT.
5.2. Credit Volume and Monetary Indicators
The net credits to the GDP ratio, which is critical to financial stability and an indicator of the
relationship of credit growth with economic activity and aggregate demand, posted a mild quarterly
decrease and reached 8.5 percent in the third quarter of 2015 (Chart 5.2.1). The third-quarter financial
tightening suggests that the net credits to GDP ratio will remain on a downtrend in the upcoming
period. Meanwhile, firms’ external credit use remained close to historical averages in the third quarter
of 2015, implying that firms had easy access to external borrowing (Chart 5.2.2). All in all, firms’ external
credit use appears to have crept up year-on-year.
Chart 5.2.1.
Chart 5.2.2.
Domestic Credit Stock and Net Domestic Credit Use*
External Credit Stock and Net External Credit Use
(Percent)
(Percent)
Domestic Credit Stock/GDP
Net Domestic Credit Use/GDP (right axis)
75
External Credit Stock/GDP
Net External Credit Use/GDP (right axis)
14
10
70
12
9
65
10
8
60
8
55
6
50
4
45
2
30
-2
1
-4
0
2008
2009
2010
2011
2012
2013
2014 2015
1.0
4
3
* Domestic credits are comprised of total banking sector credits including
participation banks, foreign branches and credit cards. Net credit use is
measured as the annual change in nominal credit stock.
Source: CBRT.
68
5
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 2 3 4 1 2 3*
2.0
6
2
25
3.0
7
35
40
4.0
0.0
-1.0
-2.0
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 2 3 4 1 2 3*
2008
2009
2010
2011
2012
2013
2014 2015
* Forecast.
Source: CBRT.
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
The annual growth rate of loans extended to the non-financial sector, which decelerated due
to the CBRT’s cautious monetary policy stance and the macroprudential measures introduced by the
BRSA regarding consumer loans excluding mortgage, continued to fall for the second consecutive
quarter. A breakdown of total loans shows that commercial loans continued to grow faster than
consumer loans on the back of the measures adopted by the BRSA and the weak consumer
confidence. Accordingly, loans extended to the non-financial sector posted a 15.3 percent year-onyear growth in exchange rate adjusted terms at the end of the third quarter of 2015, approaching the
reference mark of 15 percent for the growth rate of total loans (Chart 5.2.3). In 13-week moving
average terms, which display the third-quarter developments, total loans grew by an annual 6.6
percent (Chart 5.2.4).
Chart 5.2.3.
Chart 5.2.4.
Loan Growth
Loan Growth
(Adjusted for Exchange Rate, Annual Percent Change)
Commercial
Total
(Adjusted for Exchange Rate, 13-Week Moving Average,
Annualized, Percent)
Consumer
30
30
28
28
26
26
Commercial
Total
Consumer
40
40
35
35
30
30
1015
0715
0415
0115
1014
0714
0414
0114
1013
0713
0413
0113
1012
0712
0412
0
0112
0
1015
10
0715
5
10
0415
10
5
0115
10
12
1014
14
12
0714
14
0414
15
16
0114
15
16
1013
18
0713
20
18
0413
25
20
0113
25
20
1012
22
20
0712
22
0412
24
0112
24
Source: CBRT.
Having hovered just below the averages of past years in the first quarter of 2015 and declining
slightly more in the second quarter, the annualized growth rate of consumer loans ended the third
quarter at a record low of 5 percent (Chart 5.2.5). This rapid quarter-on-quarter fall was driven by the
slowdown across all subcategories except automobile loans. The Loan Tendency Survey and the
Consumer Confidence Index hint at both supply and demand-driven slowdown for loans. The
annualized growth rate of mortgage loans with a historically consistent 5-year average maturity and
higher interest rate sensitivity was still greater than others, but went below past years’ averages, ending
the quarter at 8.6 percent. According to the results of the Loan Tendency Survey for the third quarter,
the demand for mortgage loans edged down while loan standards saw some tightening. As a result of
the macroprudential measures implemented by the BRSA, the growth of automobile loans, which was
negative but started to recover in line with seasonal effects, registered an additional improvement in
the third quarter (Chart 5.2.6).
Inflation Report 2015-IV
69
Central Bank of the Republic of Turkey
Chart 5.2.5.
Chart 5.2.6.
Consumer Loan Growth
Consumer Loan Growth
(13-Week Moving Average, Annualized, Percent)
2014
2007-2014 Average
40
2015
(13-Week Moving Average, Annualized, Percent)
Mortgage
Personal
Automobile
10
10
-10
-10
5
5
-20
-20
0
-30
-30
Dec
Nov
Oct
Sep
Aug
Jul
Jun
Apr
May
Mar
Feb
Jan
0
1015
0
0715
10
0
0415
10
15
0115
20
15
1014
20
0714
20
0414
30
20
0114
30
25
1013
30
25
0713
30
0413
40
0113
40
1012
35
0712
50
35
0412
50
0112
40
Source: CBRT.
In the third quarter of the year, the annualized growth rate of commercial loans remained
slightly below the averages of past years and hit 5.5 percent at the end of the quarter (Chart 5.2.7). This
dramatic decline in commercial loans was largely driven by FX-denominated commercial loans, yet TLdenominated loans also appear to be slowing in the fourth quarter (Chart 5.2.8).
Chart 5.2.7.
Chart 5.2.8.
Commercial Loan Growth
TL and FX Commercial Loan Growth
(Adjusted for Exchange Rate, 13-Week Moving Average,
Annualized, Percent)
(13-Week Moving Average, Annualized, Percent)
2007-2014 Average
2014
40
40
2015
35
35
30
30
25
25
20
20
45
TL Commercial Loans
FX Commercial Loans (including foreign branches)
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
1015
0715
0415
0115
1014
0714
0414
Dec
Nov
Oct
Sep
Aug
Jul
Jun
Apr
May
Mar
Feb
Jan
0
0114
-5
0
1013
0
-5
0713
5
5
0413
5
0
0113
5
1012
10
0712
10
0412
15
0112
15
Source: CBRT.
According to the third-quarter Loan Tendency Survey results, standards for commercial loans
tightened substantially and the analysis by firm size shows that this has been prevalent across SMEs and
large-sized firms. However, responses suggest that the decline in banks’ appetite for long-term and FXdenominated lending is even more notable. As for factors affecting commercial loan standards,
expectations for overall economic activity, which have led to tightening for the last three quarters,
have continued to have a marked impact in this quarter. Meanwhile, both domestic and external
financing conditions also caused tightening in loan standards. However, the effect of financing
conditions was more evident on the side of domestic conditions. Expectations for the fourth quarter of
2015 reveal that loan standards are likely to tighten further. Similarly, financing conditions are expected
to be much tighter. On the demand front, loan demand recorded a drop in the third quarter, which
was significantly higher in large-sized firms. This drop was mostly attributed to the weakening demand
70
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
for investments, while the rising loan demand caused by debt restructuring failed to prevent the total
loan demand from decreasing.
Chart 5.2.9.
Chart 5.2.10.
Loan and Deposit Growth*
M2 Money Supply and Loans*
(Annual Change/GDP)
Deposits
Loans
16
14
12
12
10
10
8
8
6
6
4
4
2
0
0111
0411
0711
1011
0112
0412
0712
1012
0113
0413
0713
1013
0114
0414
0714
1014
0115
0415
0715
35
Loans
14
* Including participation banks and excluding interbank deposits.
Source: TURKSTAT, CBRT.
(Adjusted for Exchange Rate, Annual Percent Change)
M2
35
30
30
25
25
20
20
15
15
10
10
2
5
5
0
0
0
0111
0411
0711
1011
0112
0412
0712
1012
0113
0413
0713
1013
0114
0414
0714
1014
0115
0415
0715
1015
16
* Including participation banks and credits cards and excluding nonperforming loans.
Source: CBRT.
After having caught up with the pace of loan growth in the second quarter thanks to policies
adopted by the CBRT and the BRSA, deposit growth exceeded loan growth in the third quarter
(Chart 5.2.9). The relationship between M2 and loans suggests that the growth rate of loans has
recently diverged from that of money supply, yet remained consistent and hovered at reasonable
levels (Chart 5.2.10).
Monetary Indicators
Credits extended to the private sector continue to determine the annual growth of M3, the
broad measure of money supply. The recently slowing growth rate of Private Sector Claims, which
mostly include credits extended by banks to non-financial private individuals and institutions, caused
the M3 growth to moderate in the third quarter. Meanwhile, the item Other, which displayed a
relatively steady course in line with bank profitability, is still a non-deposit funding source for the banking
sector, yet continues to contribute negatively to money supply. Being more unstable than the item
Other, Public Sector Claims continue to put downward pressure on the M3 growth for the second
quarter in a row (Chart 5.2.11).
The annual growth of seasonally adjusted currency in circulation has been on an uptrend since
the last quarter of 2014 (Chart 5.2.12). This is mainly attributed to the higher demand for currency in
circulation due to the recent price hikes, which have been observed owing to the mild domestic
demand growth.
Inflation Report 2015-IV
71
Central Bank of the Republic of Turkey
Chart 5.2.11.
Chart 5.2.12.
Balance Sheet Decomposition of M3
Currency in Circulation and Current Consumption
Spending*
(Contributions to Annual M3 Growth)
(Seasonally Adjusted)
4. Other
2. Private Sector Claims
2. Public Sector Claims
1. Net External Assets
1+2+3-4= M3 (annual percent change)
40
Current Consumption Spending (annual percent change)
Currency in Circulation (annual percent change)
Currency in Circulation (billion TL, right axis)
40
35
30
30
30
20
20
115
105
95
10
85
20
75
15
65
10
0
0
45
-10
5
-20
-20
0
0507
0907
0108
0508
0908
0109
0509
0909
0110
0510
0910
0111
0511
0911
0112
0512
0912
0113
0513
0913
0114
0514
0914
0115
0515
55
10
-10
Source: CBRT.
72
25
35
25
12341234123412341234123412341234
2008 2009 2010 2011 2012 2013 2014 2015
* Consumption spending includes private and public consumption
excluding furniture, household appliances, transport and communication
services at current prices.
Source: TURKSTAT, CBRT.
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Box
5.1
The
The Relationship between Loans and Private Savings
Turkish economy grew more stable after the 2001 economic crisis thanks to a substantially smaller
public debt stock as well as lower inflation and real interest rates on the back of the reform program. In the
post-crisis period with higher stability, the private savings rate (private savings to GDP ratio) dropped
notably, while households had easier access to loans, which thereby pushed consumer loans significantly
higher (Charts 1 and 2).
Chart 1. Savings to GDP
Chart 2. New Loan Originations to GDP
(Percent)
(Percent)
30
Private
Public
Total
25
20
14
12
Mortgage
Other
Total
10
15
8
10
6
5
4
0
-10
0
Source: Ministry of Development.
1298
1099
0800
0601
0402
0203
1203
1004
0805
0606
0407
0208
1208
1009
0810
0611
0412
0213
1213
2
1298
0899
0400
1200
0801
0402
1202
0803
0404
1204
0805
0406
1206
0807
0408
1208
0809
0410
1210
0811
0412
1212
0813
0414
-5
Source: Banks Association of Turkey.
This study analyzes the determinants of the private savings rate in Turkey by using quarterly data for the
1998-2014 period with a special focus on the impact of mortgages and other loan types on private savings.
Even though the mortgage to GDP ratio is currently low, it is expected to increase with further credit
expansion. Therefore, mortgages are likely to become more critical to the private savings rate in the
following periods.
The low savings rate in Turkey is a major obstacle to investments and growth. Concurrently, low savings rate
is the main reason for the widening current account deficit. Due to the low domestic savings rate,
investments and growth rely heavily on foreign capital, which is extremely volatile and sensitive to the
income differences across countries. On the other hand, high capital inflows today may bear the risk to
translate into higher capital outflows in the future. Thus, insufficiency of domestic capital and sensitivity to
external borrowing may have a negative impact on economic growth over time. This signifies the
importance of domestic savings for the robustness and the sustainability of growth.
Mortgages have important implications for household savings. Before applying for a mortgage, households
save the down payment; and after receiving the loan, they make regular payments, which help them to
accumulate home equity. On the other hand, having access to a mortgage reduces the uncertainty about
the most important buying decision (buying a house) that most households make in their lifetime. In the
absence of a mortgage, households need to save to buy a house at an uncertain price and an uncertain
date that will take place in the future. However, with mortgage, the price and monthly payments are
determined upfront and therefore the uncertainty over how much the household needs to save to buy a
house lessens, which can lead to a significant reduction in household savings.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
The
following model is estimated using the least squares estimation technique to analyze the effects of
mortgage and non-mortgage loans as well as other relevant variables on private savings:
𝑔
∆𝑃𝑆𝑡 = 𝛽1 ∆𝑃𝑆𝑡−1 + 𝛽2 𝑌𝑡 + 𝛽3 ∆𝐸𝑀𝐵𝐼𝑡 + 𝛽4 𝐼𝑁𝑇𝑡 + 𝛽5 𝑇𝑜𝑇𝑡 + 𝛽6 ∆𝐺𝑆𝑡
𝑓
𝑓
+ 𝛽7 ∆𝑀𝐿𝑡 + 𝛽8 ∆𝑀𝐿𝑠𝑡 + 𝛽9 ∆𝑁𝑀𝐿𝑡 + 𝛽10 ∆𝐶𝐿𝑡 + 𝛽11 ∆𝑀𝐿𝑡 ∆𝑀𝐿𝑠𝑡 + 𝜀𝑡
Where 𝑃𝑆𝑡 is the current private savings rate, 𝑃𝑆𝑡−1
𝑔
is the lagged private savings rate, 𝑌𝑡 is the per capita
real GDP growth, 𝐸𝑀𝐵𝐼𝑡 is the sovereign risk premium, 𝐼𝑁𝑇𝑡 is the real interest rate, 𝑇𝑜𝑇𝑡 is terms of trade,
𝑓
𝐺𝑆𝑡 is the public savings rate, 𝑀𝐿𝑡 is the ratio of new mortgage originations to GDP, 𝑀𝐿𝑠𝑡 is the ratio of
outstanding mortgages to GDP, 𝑁𝑀𝐿𝑡 is the ratio of other consumer loan originations to GDP, 𝐶𝐿𝑡 is the
ratio of commercial loans to GDP and ∆ is the lag operator.1
According to the results shown in Table 1, in the absence of mortgages and other loans, the significant
explanatory variables are lagged savings rate and the sovereign risk premium (Models 1 and 4). However,
in Models 2 and 5 where new mortgage originations are included, a 1-percent increase in new mortgage
originations to the GDP ratio leads to a decline of more than 1 percent in the private savings rate. These
results show that mortgage loans had a substantial effect on the private savings rate, especially after the
2001 crisis. Moreover, in a similar study conducted for the US, it was also found that mortgage payments
brought private and household savings down significantly (Tunç and Yavaş, 2015b).
According to Models 3 and 6, which include all the explanatory variables, the effect of new
mortgage
originations on the private savings rate remains unchanged, while other loans also have a statistically
significant effect. A 1-percent increase in other consumer loans drives the private savings rate down by
slightly more than 0.9 percent, whereas commercial loans have a positive effect on the private savings rate.
Mortgages are mostly considered as an investment in home equity, while other consumer loans are
generally taken for spending purposes. The higher negative effect of new mortgage originations on the
private savings rate than other consumer loans is attributed to the ending of uncertainty about the biggest
investment of households. However, the positive effect of commercial loans on the private savings rate can
be ascribed to the fact that firms use part of the commercial loans to avoid fluctuations in investments and
reduce the fixed costs paid for loans as well (Eisfeldt and Muir, 2014).
The mortgage to GDP ratio is still relatively low for Turkey. Yet, assuming continued growth at the current
pace, mortgages will require special focus due to their negative effect on the private savings rate. In fact,
the negative and statistically significant relation of the interaction of new mortgage originations and
outstanding mortgages with private savings rate indicates that new mortgages might have an added
effect on savings with higher mortgage stock. These results also show how taxes and macroprudential
measures are important in alleviating the effects of mortgages on the savings rate. Because of the high
correlation between the current account deficit and the savings rate, the evidence based on the Turkish
data seems to be valid for other countries running a current account deficit as well.
1
For further details, see Tunç and Yavaş (2015a).
74
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Table 1. Estimation Results
Variables
Model 1
Lagged Private Savings Rate
0.794***
(0.0943)
0.0856*
(0.0491)
0.412***
(0.0837)
Per Capita Real GDP Growth
Sovereign Risk Premium
Real Interest Rate
Terms of Trade
Public Savings Rate
-0.0565
(0.0517)
0.00659
(0.0367)
-0.229
(0.143)
New Mortgage Originations
1998 - 2014
Model 2
0.477***
(0.0930)
0.0584
(0.0390)
0.348***
(0.0670)
0.0901**
(0.0412)
0.00324
(0.0290)
-0.325***
(0.114)
-1.104***
(0.194)
Outstanding Mortgages
Other Consumer Loans
Commercial Loans
Model 3
Model 4
2002-2014
Model 5
Model 6
0.366***
(0.0834)
0.0746
(0.0451)
0.224***
(0.0629)
0.794***
(0.115)
0.0803
(0.0503)
0.380***
(0.135)
0.363***
(0.0922)
0.0451
(0.0328)
0.273***
(0.0883)
0.229**
(0.0916)
0.0942**
(0.0432)
0.265***
(0.0842)
-0.0607
-0.0566
-0.103***
-0.0573
(0.0382)
-0.0372
(0.0267)
-0.391***
(0.113)
-1.153***
(0.219)
0.103
(0.378)
-0.955***
(0.210)
0.180***
(0.0538)
(0.0578)
-0.0359
(0.0598)
-0.232
(0.171)
(0.0378)
-0.0986**
(0.0394)
-0.447***
(0.113)
-1.340***
(0.171)
(0.0388)
-0.0936**
(0.0366)
-0.622***
(0.129)
-1.275***
(0.198)
0.168
(0.333)
-0.938***
(0.254)
0.129**
(0.0588)
New Mortgage Originations* Outstanding
Mortgages
Number of Observations
R2
58
0.858
58
0.913
-0.422
-0.447*
(0.256)
(0.222)
58
0.943
49
0.861
49
0.943
49
0.960
*, **, and *** denote significance at 10 percent, 5 percent and 1 percent, respectively. Standard errors are in parentheses.
REFERENCES
Eisfeldt, A. and T. Muir, 2014, Aggregate Issuance and Saving Waves, NBER Working Paper No. 20442.
Tunç, C. and A. Yavaş, 2015a, Not All Credit is Created Equal: Housing vs Non-Housing Debt and Private
Saving Rate in Turkey, CBRT Working Paper No. 15/24.
, 2015b, Collateral Damage: How Mortgages Decrease U.S. Savings, work in progress.
Inflation Report 2015-IV
75
Central Bank of the Republic of Turkey
Box
The Relationship of Consumer and Commercial Loans with the Current Account
5.2
Deficit: Evidence for Turkey and Other Countries
Loans
are one of the key variables that should be closely monitored for financial stability. Given the
assumed relation between loans and economic activity, loans are also critical to monetary policy via their
effects on inflation and demand management. Furthermore, loans are related to the overall
macroeconomic environment through their effects on the current account balance. In this regard, Ekinci et
al. (2015) show that loan growth is highly correlated with the current account balance, especially in
emerging economies, and acceleration in loan growth might deteriorate the current account balance.
Besides the fact that loans have an impact on the current account balance, how this relation differs by
loan type (consumer and commercial loans) is a crucial question that may have policy implications.
Analyzing how consumer and commercial loans are linked to the current account deficit in Turkey reveals
that both loans move on par with the current account deficit; yet, the correlation between consumer loans
and the current account deficit appears more significant lately (Charts 1 and 2).
Chart 1. Current Account Deficit and Consumer Loan
Growth
Chart 2. Current Account Deficit and Commercial Loan
Growth
(6-Month Moving Average, Percent of GDP)
(6-Month Moving Average, Percent of GDP)
12
5
Current Account Deficit
Consumer Loan Growth (right axis)
10
4
12
13
Current Account Deficit
12
11
Commercial Loan Growth (right axis)
10
10
9
8
8
8
3
7
6
6
6
2
5
4
4
1
2
4
3
2
2
1
0715
0714
0713
0712
0711
0710
0709
0708
0707
0706
0
0705
0
0704
0715
0714
0713
0712
0711
0710
0709
0708
0707
0706
0705
0
0704
0
Source: BRSA, TURKSTAT, CBRT.
The relation between loans and the current account deficit may vary by loan type due to various reasons.
First, a rise in consumer loans may increase consumer demand, which may also cause higher demand for
imported goods, thereby worsening the current account deficit. Also, when the supply capacity of an
economy is constant, the financing of a demand increase by consumer loans may trigger an overall price
hike. This may cause a real appreciation in the local currency, which may function as an additional
channel to widen the current account deficit. Conversely, commercial loans may have different effects on
the current account deficit than consumer loans. In other words, the use of commercial loans to finance
firms’ imported inputs may expand the current account deficit, while a simultaneous output growth may
limit the widening of the current account deficit assuming no deterioration in the production structure in
favor of imported inputs. Moreover, the use of commercial loans in investments may first widen the current
account deficit due to partial reliance on external funds and/or utilizing imported inputs in investment.
However, the subsequent growth in output capacity will curb the widening of the current account deficit
by supporting supply. Besides, increased output capacity may also promote exports, which will reduce the
current account deficit. In case firms’ loan constraints are binding for exports, a rise in commercial loans
may directly cause lower current account deficit through growth in exports.
76
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
The Turkish Evidence
Table 1 summarizes the results of a simple regression analysis based on quarterly data over the 2003Q22015Q2 period for Turkey.2 According to the results, the GDP growth stands out as an important explanatory
variable for the current account balance. Moreover, the real exchange rate has a significant effect on the
current account deficit excluding energy and gold. The change in total loans to the GDP, which is included
in columns 2 and 6, is also found to be statistically significant with negative effects on the current account
balance. In addition to consumer loans, commercial loans are added to equations in columns 3 and 7,
while commercial loan share is included in columns 4 and 8 in order to handle the multicollinearity problem
that would possibly arise from the high correlation of these two loan types. Accordingly, the current
account balance seems to be related to loans mostly via consumer loans. In other words, an increase in
consumer loans has a statistically significant negative effect on the current account deficit, whereas an
increase in commercial loans has no significant effect on the current account balance.
Table 1. Relationship between Loan Growth and Current Account Deficit in Turkey
Current Account Deficit/GDP
Current Account Deficit/GDP (-1)
GDP Growth
Real Effective Exchange Rate (-1)
1
2
3
4
5
6
7
8
0.810***
0.661***
0.625***
0.591***
0.729***
0.609***
0.613***
0.627***
(0.072)
(0.081)
(0.085)
(0.101)
(0.142)
(0.169)
(0.152)
(0.162)
-0.259***
-0.263***
-0.212***
-0.194***
-0.136***
-0.157***
-0.163***
-0.119***
(0.091)
(0.074)
(0.073)
(0.071)
(0.040)
(0.037)
(0.047)
(0.034)
-0.023
-0.027
-0.009
0.005
-0.030*
-0.036**
-0.038*
-0.026
(0.022)
(0.022)
(0.028)
(0.026)
(0.015)
(0.016)
(0.022)
(0.016)
-0.107***
Change in Total Loans/GDP (-1)
-0.055**
(0.038)
Change in Commercial
Loans/GDP (-1)
Change in Consumer
Loans/GDP (-1)
(0.025)
-0.040
-0.067
(0.067)
(0.051)
-0.423*
-0.543***
-0.024
-0.226**
(0.231)
(0.168)
(0.161)
(0.094)
Share of Commercial Loans (-1)
Constant
Current Account Deficit (excl. energy and
gold)/GDP
0.034
-0.016
(0.054)
(0.026)
1.713
2.331
0.208
-3.902
3.298*
4.452**
4.708*
4.415*
(2.497)
(2.431)
(3.093)
(5.851)
(1.638)
(1.849)
(2.481)
(2.585)
Number of Observations
48
48
48
48
48
48
48
48
R2
0.71
0.75
0.76
0.76
0.68
0.71
0.71
0.70
*, **, and *** denote significance at 10 percent, 5 percent and 1 percent, respectively. Standard errors are in parentheses. (-1) denotes lagged value of the respective
variable.
The fact that the effects of consumer and commercial loans on the current account deficit are different
also entails informative value regarding the measures to be taken for the current account balance. The
findings suggest that controlling total loan growth mostly by limiting consumer loans may improve the
current account balance. Accordingly, the decelerating consumer loans and robust commercial loans,
which are backed by the liquidity policies adopted by the CBRT and the macroprudential measures
enforced by the BRSA to limit consumer loans are assessed to have a positive impact on the current
account balance.
2
For further details, see Box 5.2, Inflation Report 2014-III and Alioğulları et al. (2015a).
Inflation Report 2015-IV
77
Central Bank of the Republic of Turkey
International Findings
There are only a few studies in the literature, which examine the relationship between loan composition
and the current account deficit. Coricelli et al. (2006) analyze the macroeconomic effects of consumer
loans at quarterly and monthly frequencies for seven European countries including Turkey over the 19992004 period. Accordingly, the study finds that consumer loans have a statistically significant negative
impact on the external balance in Turkey, while commercial loans improve the external balance.
Büyükkarabacak and Krause (2009) analyze the relationship between loan composition and the trade
balance for 18 emerging economies including Turkey over the 1987-2005 period and conclude that
consumer loans worsen the trade balance while commercial loans have a positive effect. In order to
represent the loan variable, the authors use stock data of loans over the GDP, which may be problematic
as the external trade balance is a flow variable. Hence, this study prefers to construct an alternative
measure, which is a flow variable. Accordingly, the change in loan stock to the GDP ratio is used to analyze
the relation between loan growth and the current account deficit. In fact, by using the changes in the loan
stock to the GDP, Mian et al. (2015) analyze the macroeconomic effects of consumer loans for a large
group of countries and find that an increase in consumer loans weakens economic growth; raises
unemployment; and deteriorates the external trade balance.
To
take a closer look at the relationship of loan composition with the current account deficit on an
international scale, BIS data are employed on annual consumer and commercial loans for the 1990-2013
period.3 Chart 3 presents international evidence on the relationship between loan growth and the current
account deficit.
Chart 3. International Evidence on the Relation between Loan
Growth and Current Account Deficit
Source: BIS, IMF.
Table
2 shows the results of the analysis. Accordingly, consumer loans have a statistically significant
negative effect on the current account balance, which is also economically meaningful. Commercial
loans, on the other hand, are insignificant in some specifications, while they are observed to have a
positively significant effect in some others. These findings are consistent with previous results pertaining to
other countries and the above evidence presented for Turkey.
Countries included in the dataset are Australia, Austria, Belgium, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Hungary,
India, Indonesia, Italy, Japan, Korea, Netherlands, Norway, Mexico, South Africa, Spain, Sweden, Poland, Thailand, Turkey, UK and USA. For further
details, see Alioğulları et al. (2015b).
3
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Table 2. The Dynamic GMM Estimation Results of the International Evidence on the Relationship between
Loan Growth and Current Account Deficit
Current Account Deficit/GDP
Lagged Value of the Current
Account Deficit/GDP
GDP Growth
Real Effective Exchange Rate
Change in Consumer Loans/GDP
Change in Commercial Loans/GDP
(1)
(2)
(3)
(4)
(5)
0.47***
0.44***
0.43***
0.43***
0.32***
(0.078)
(0.050)
(0.075)
(0.075)
(0.076)
-0.043
-0.088**
-0.087**
-0.032
0.030
(0.037)
(0.042)
(0.043)
(0.047)
(0.057)
-0.036**
-0.039***
-0.038**
-0.025
-0.030*
(0.015)
(0.015)
(0.015)
(0.016)
(0.016)
-0.256***
(0.052)
-0.238***
(0.066)
-0.245***
(0.068)
-0.248***
(0.076)
-0.164***
(0.079)
0.015
(0.011)
0.031***
(0.012)
0.033***
(0.012)
0.033***
(0.011)
0.008
(0.032)
0.067***
(0.024)
0.062**
(0.025)
0.068***
(0.026)
0.045*
(0.025)
0.130*
(0.076)
0.131*
(0.078)
0.071
(0.078)
0.021
0.011
(0.015)
(0.015)
Terms of Trade
Volatility in Terms of Trade
Change in Gross Government
Debt/GDP
Real Interest Rates
Number of
Observations
0.099
(0.065)
613
339
319
306
206
*, **, and *** denote significance at 10 percent, 5 percent and 1 percent, respectively. Standard errors are in parentheses.
In
conclusion, both the Turkish case and the international evidence suggest a significant relationship
between consumer loans and the current account balance. Accordingly, an increase in the change in
consumer loans to the GDP ratio drives the current account deficit higher. These results highlight the
importance of the CBRT’s framework, which has been in effect since end-2010 to observe financial stability,
and the macroprudential measures adopted by the BRSA in bringing loan growth to reasonable levels and
changing the loan composition in favor of the current account balance.
REFERENCES
Alioğulları, Z.H., Y.S. Başkaya, Y.E. Bulut and M. Kılınç, 2015a, The Relationship of Consumer and Commercial
loans with Current Account Deficit in Turkey, CBT Research Notes in Economics No. 15/19.
, 2015b, Loan Composition and Current Account Balance: International Evidence, work in
progress.
Büyükkarabacak, B. and S. Krause, 2009, Studying the effects of household and firm loan on the trade
balance: The composition of funds matters, Economic Inquiry, 47(4): 653–666.
Coricelli, F., F. Mucci and D. Revoltella, 2006, Household Loan in the New Europe: Lending Boom or
Sustainable Growth?, CEPR Discussion Papers No. 5520.
Ekinci, M.F., F.P. Erdem and Z. Kılınç, 2015, Loan Growth, Current Account and Financial Depth, Applied
Economics, 47(17): 1809–1821.
Mian, A.R., A. Sufi and E. Verner, 2015, Household Debt and Business Cycles Worldwide, NBER Working Paper
No. 21581.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
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6. Public Finance
In the first three quarters of 2015, the central government primary surplus posted a year-on-year
increase, while the central government budget deficit edged slightly higher due to the relative upsurge
in interest expenditures. Primary expenditures maintained the sharp uptrend of the recent years, while
tax revenues performed better than expected and hovered above the target. In particular, indirect tax
revenues such as SCT and VAT increased at a faster pace.
The MTP covering the 2016-2018 period has been announced. The MTP states that the fiscal
policy will be implemented to support economic stability, to enhance growth potential, to reduce the
current account deficit by increasing domestic savings and to contribute to price stability. To ensure
that the fiscal policy helps achieve these goals, the budget will be allowed to become more flexible
and the public savings-investment gap will be gradually narrowed by curbing the rate of increase in
public spending and the public sector borrowing requirement. Moreover, public spending on
infrastructure investments, trainings and R&D will be prioritized in order to support economic growth.
Meanwhile, it is underlined that the quality of public revenues will be improved and therefore nonrecurring revenues will no longer be used to finance policies that permanently raise the level of public
spending in the medium to long term. Thus, tight fiscal standards are expected to help maintain fiscal
discipline and bring the debt stock to GDP ratio further down gradually over the MTP period (Table 6.1).
This fiscal adjustment is likely to be achieved by controlling the rate of increase in primary expenditures,
and accordingly, the tax revenues to GDP ratio will edge down over time.
In 2015, the central government budget deficit to GDP is estimated to remain unchanged yearon-year at 1.3 percent (Table 6.1). As evidenced by the MTP projections for realizations, public
spending was significantly higher than the target in 2015. However, thanks to the strong performance of
tax revenues, the budget deficit is expected to deviate only marginally.
Table 6.1.
Central Government and General Government Budget Balance
(Percent of GDP)
2014
2015*
2016**
2017**
2018**
25.6
26.1
25.3
24.7
23.9
Primary Expenditures
22.8
23.3
22.7
22.2
21.5
Interest Expenditures
2.9
2.8
2.6
2.5
2.4
24.3
24.8
24.5
24.0
23.5
Tax Revenues
20.1
21.1
20.7
20.6
20.5
Other Revenues
4.2
3.8
3.8
3.4
3.0
Budget Balance
-1.3
-1.3
-0.7
-0.6
-0.4
Primary Balance
General Government Budget
Balance
General Government Primary
Balance
1.5
1.5
1.8
1.9
2.0
-0.6
0.0
-0.1
-0.2
0.0
2.3
2.9
2.5
2.4
2.5
EU-Defined Nominal Debt Stock
33.5
34.0
32.8
31.3
30.0
Expenditures
Revenues
* Forecast.
** MTP.
Source: MTP (2016-2018).
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6.1. Budget Developments
During January-September 2015, the central government budget balance registered a deficit of
13.5 billion TL while the primary budget balance had 31.3 billion TL in surplus (Table 6.1.1). The central
government primary balance recorded an increasing surplus whereas the central government budget
balance posted a slightly higher deficit due to the relatively faster rise in interest expenditures in the first
nine months of 2015 compared to the same period of the previous year.
Table 6.1.1.
Central Government Budget Aggregates
(Billion TL)
2014
JanuarySeptember
2015
JanuarySeptember
Rate of
Increase
(Percent)
Actual/Target
(Percent)
325.4
367.7
13.0
77.7
38.3
44.8
17.0
82.9
Primary Expenditures
Central Government Budget
Revenues
I. Tax Revenues
287.2
322.9
12.4
77.1
313.5
354.2
13.0
78.4
258.7
298.3
15.3
76.6
II. Non-Tax Revenues
42.8
42.2
-1.6
81.9
Budget Balance
-11.9
-13.5
-
-
Primary Balance
26.3
31.3
18.8
94.8
Central Government Budget
Expenditures
Interest Expenditures
Source: Ministry of Finance.
The central government budget deficit to the GDP ratio, which rose slightly in 2014, is estimated
to hit 1.3 percent in the third quarter of 2015, remaining unchanged from the end-2014 level
(Chart 6.1.1). Meanwhile, the primary budget surplus to the GDP ratio assumed an upward course and
reached 2 percent at end-2013, after declining to 1.1 percent in the third quarter of 2012. This ratio
dropped to 1.6 percent in 2014 and is estimated to rise to 1.7 percent in the third quarter of 2015.
Chart 6.1.1.
Chart 6.1.2.
Central Government Budget Balance
Central Government Budget Revenues and Primary
Expenditures
(Annualized, Percent of GDP)
(Annualized, Percent of GDP)
Budget Balance
3
Primary Balance
3
1
Budget Revenues
26
Primary Expenditures
26
24
24
22
22
20
20
18
18
16
16
1
-1
-1
-3
-3
-5
-5
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2010
2011
2012
2013
2014
2015
14
14
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2010
2011
2012
2013
2014
2015
* Forecast.
Source: Ministry of Finance.
Having surged since 2012 and reaching 22.8 percent at end-2013, the central government
primary expenditures to GDP ratio hit 23.1 percent in the third quarter of 2014, which is the highest level
recorded since 2008. This ratio fell slightly to 22.8 percent in the last quarter of 2014 and is expected to
creep up to 23.1 percent in the third quarter of 2015 (Chart 6.1.2). On the other hand, the central
government budget revenues to GDP ratio increased upon the relatively robust economic activity as
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well as tax adjustments in September 2012 and January 2013, reaching 24.8 percent at end-2013. This
ratio dropped to 24.3 percent in 2014, mainly due to slowing tax revenues based on domestic demand,
and is estimated to go up to 24.8 percent in the third quarter of 2015.
Trending upwards since the second half of 2012, the central government primary budget
expenditures remained on the rise in the first nine months of 2015. Accordingly, the central government
primary budget expenditures registered a year-on-year increase of 12.4 percent during JanuarySeptember 2015 (Table 6.1.2).
Table 6.1.2.
Central Government Primary Expenditures (Billion TL)
Primary Expenditures
1. Personnel Expenditures
2. Government Premiums to SSI
3. Purchases of Goods and Services
4. Current Transfers
a) Duty Losses
b) Health, Pension and Social Benefits
c) Agricultural Support
d) Reserved Share Revenues
5. Capital Expenditures
6. Capital Transfers
7. Lending
2014
JanuarySeptember
287.2
84.4
14.1
24.6
125.0
2.0
62.3
7.8
35.1
27.0
4.3
7.8
2015
JanuarySeptember
322.9
95.0
15.5
28.4
138.8
3.0
63.3
8.4
41.6
29.9
5.6
9.7
Rate of
Increase
(Percent)
12.4
12.6
9.9
15.3
11.1
50.2
1.6
8.4
18.6
10.8
30.1
23.6
Actual/Target
(Percent)
77.1
79.8
76.3
69.0
78.7
67.4
78.5
84.4
76.5
73.1
81.7
91.8
Source: Ministry of Finance.
In the first nine months of 2015, purchases of goods and services as well as personnel
expenditures, which are major items in primary expenditures, registered an increase of 15.3 and 12.6
percent, respectively, while current transfers were only up by 11.1 percent. The relatively limited rise in
current transfers was caused by the mere increase by 1.6 percent in health, pension and social benefit
expenditures. The shares reserved for other public institutions and enterprises from the central
government revenues recorded a striking upswing of 18.6 percent, owing not only to the high central
government tax revenue performance in the first nine months of 2015, but also to the termination of
deductions made for debts of local administrations. Capital expenditures rose upon the rise in highway
construction expenditures, while capital transfers increased notably due to capital transfers to special
provincial administrations. The upsurge by 23.6 percent in lending resulted from the rise in loans
extended to SEEs.
During January-September 2015, the central government general budget revenues recorded a
year-on-year increase of 12.9 percent (Table 6.1.3). In this period, tax revenues performed strongly and
rose by 15.3 percent, while non-tax revenues dropped slightly. A closer scrutiny of tax revenues reveals
that the collection of consumption-based taxes and the income tax recorded a year-on-year upsurge
in the first nine months of 2015. Meanwhile, corporate tax revenues hardly increased because of the
weaker profitability of corporations and institutions. As income tax revenues are largely provided
through withholding taxes on salaries and wages, the high increase in minimum wages in 2015
improved the collection of income taxes. Among consumption-based taxes, revenues from SCT,
domestic VAT and VAT on imports recorded an uptick by 18.5, 17.8 and 13.4 percent, respectively. The
details of SCT revenues show a jump of 45.2 percent in tax revenues on motor vehicles. The increase in
the collection of taxes on petroleum and natural gas products, which account for a large share of total
SCT revenues, remained relatively low at 11.9 percent.
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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
Enterprises and Property Revenues
Interests, Shares and Fines
Capital Revenues
2014
JanuarySeptember
2015
JanuarySeptember
Rate of Increase
(Percent)
Actual/Target
(Percent)
301.5
258.7
53.2
24.1
29.3
65.4
47.1
42.8
11.4
22.1
6.8
340.4
298.3
61.9
24.5
34.5
77.4
53.4
42.2
13.2
19.7
7.2
12.9
15.3
16.5
1.5
17.8
18.5
13.4
-1.6
15.2
-10.6
6.2
77.f.,2
76.6
75.2
67.8
78.0
82.4
71.1
81.9
138.8
68.4
68.9
Source: Ministry of Finance.
The unchanged performance of non-tax revenues on an annual basis is mainly attributed to the
base effect generated by the one-time inclusion of 3 billion TL in the budget in March 2014 from the
special provincial administrations, which were annulled by Law No. 6360. On the other hand,
privatization revenues, which had been 5.3 billion TL in the first nine months of 2014, amounted to 6.1
billion TL in the same period of 2015.
Having turned positive amid tax rate hikes in September 2012 as well as the base effect, the
annual rate of change in real tax revenues started to slacken in the third quarter of 2013, and real tax
revenues remained unchanged year-on-year in the last quarter of 2014. Yet, real tax revenues posted
a yearly increase of 6.7 percent in the third quarter of 2015 (Chart 6.1.3). The analysis of this increase by
sub-items suggests that revenues from domestic VAT, SCT and VAT on imports, which are counted
among consumption-based taxes, surged by 19.5, 9.3 and 3 percent in real terms, respectively
(Chart 6.1.4).
Chart 6.1.3.
Chart 6.1.4.
Real Tax Revenues
Real VAT and SCT Revenues
(Annual Percent Change)
(Annual Percent Change)
Real Domestic VAT Revenues
Real SCT Revenues
Real VAT Revenues on Imports
25
25
50
50
20
20
40
40
15
15
30
30
10
10
20
20
5
6.7 5
10
10
0
0
0
0
-5
-5
-10
-10
-20
-10
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2010
2011
2012
2013
2014
2015
-10
-20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2010
2011
2012
2013
2014
2015
Source: Ministry of Finance.
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6.2. Developments in the Public Debt Stock
The central government debt stock reached 689.8 billion TL in September 2015 (Chart 6.2.1). In
the first half of the year, the ratio of the total public net debt stock to GDP decreased by 2.2 points
from end-2014, while the EU-defined general government nominal debt stock to GDP ratio remained
virtually unchanged (Chart 6.2.1).
Chart 6.2.1.
Chart 6.2.2.
Public Debt Stock Indicators
Composition of the Central Government Debt Stock*
(Percent)
Total Public Net Debt Stock
(Percent of GDP)
Central Government Total Debt Stock
(Billion TL, right axis)
80
Fixed-Rate
800
Floating-Rate
FX-Denominated/FX-Indexed
100
100
32.2
689.8
80
80
600
40
29.4
33.7
60
400
60
26.4
60
36.5
EU-Defined General Government Nominal Debt Stock
(Percent of GDP)
0
2005
2007
2009
2011
20
0
0
2003
38.4
200
8.5
20
40
37.1
40
0
2001
2013 2015/6
20
2003 2005
2007
2009
2011
2013 2015/9
* FX-Denominated/FX-Indexed debt stock includes external debt stock and
FX-denominated and FX-indexed domestic debt stock.
Source: Treasury.
Source: Treasury.
The share of fixed-rate securities in the total debt stock was slightly down from 2014 (Chart 6.2.2).
With respect to the interest rate structure of domestic borrowing, the share of fixed-rate borrowing
increased annually in the first eight months of 2015. Meanwhile, the ratio of public deposits to average
monthly debt service stands at 313.9 percent. The average term-to-maturity of the domestic debt stock
equaled 56 months (Chart 6.2.3). External borrowing by bond issues amounted to 3 billion USD, with an
average maturity of 19.7 years (Chart 6.2.4).
Chart 6.2.3.
Chart 6.2.4.
Average Maturity of the Domestic Cash Borrowing
and Term-to-Maturity of the Domestic Debt Stock
Borrowing By Bond Issue
(Month)
External Borrowing (billion USD, right axis)
Average Maturity of Domestic Debt Stock
Average Maturity of External Borrowing (year)
Average Maturity of Domestic Cash Borrowing
80
72.9
70
56.0
60
50
80
35
70
30
60
Maximum Maturity of External Borrowing (year)
8
7
6
25
50
5
20
40
40
30
30
4
15
2014
1
0
2015/9
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2
2003
2015/9
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
2002
0
2001
10
0
2000
10
5
2002
20
2001
20
3
10
Source: Treasury.
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Central Bank of the Republic of Turkey
The domestic debt rollover ratio ended August 2015 at 86.9 percent (Chart 6.2.5). The average
real interest rate1 has been on the rise since early 2015 (Chart 6.2.6).
Chart 6.2.5.
Chart 6.2.6.
Total Domestic Debt Rollover Ratio
Average Maturity and Interest Rates of Borrowing at
Discount Auctions
(Percent)
Maturity (day)
Average Compounded Interest Rate (right axis)
110
700
100
90
86.9
Real Interest Rate (right axis)
30
600
25
500
20
400
15
300
10
200
5
100
0
80
81.5
2003
2005
2007
2009
2011
2013
2015/8
-5
1203
0604
1204
0605
1205
0606
1206
0607
1207
0608
1208
0609
1209
0610
1210
0611
1211
0612
1212
0613
1213
0614
1214
0615
0
70
Source: Treasury, CBRT.
Real interest rates are calculated by subtracting the 12-month-ahead inflation expectations of the CBRT Survey of Expectations from nominal
interest rates (average annual compounded interest rate at the Treasury’s TL-denominated zero-coupon securities auction).
1
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Box
Public Debt Stock and Budget Deficit Developments: An International Comparison
6.1
Fiscal balances improved substantially in the Turkish economy with the uninterrupted implementation of a
tight fiscal policy on the back of structural reforms and measures for fiscal discipline introduced in the
aftermath of the crisis in February 2001. Having hovered at around 12 percent in 2001, the general
government budget deficit to GDP ratio fell below the Maastricht criterion of 3 percent in 2005 with
tightened fiscal policy, and even reached positive values in 2006, thus yielding a surplus (Chart 1). Likewise,
the public debt stock to GDP ratio dropped below the Maastricht criterion of 60 percent in 2004, down from
78 percent in 2001, and remained on the decline in the following years (Chart 2).
Chart 1. General Government Budget Deficit
Chart 2. Public Debt Stock
(Percent of GDP)
(Percent of GDP)
-12
80
-9
60
-6
40
-3
20
0
0
3
2001
2003
2005
2007
2009
2011
Source: Ministry of Development.
Thanks
2001
2013
2003
2005
2007
2009
2011
2013
Source: Treasury.
to the favorable fiscal performance, the borrowing cost of the Treasury has dropped markedly
starting from end-2003 (Chart 3) and the maturity of borrowing began to extend significantly (Chart 4).
Following the dramatic fall in the public debt stock to GDP ratio, the debt sustainability issue, one of the
most fundamental items in the economic itineraries of the post-2001 period, has been off the agenda as of
2005.
Chart 3. Real Interest Rates
Chart 4. Average Maturity of Borrowing
(2-Year Treasury Bond Rates)
(Day)
700
40
36
600
32
28
500
24
400
20
16
300
12
8
200
4
100
Source: BIST, CBRT.
Inflation Report 2015-IV
0115
0114
0113
0112
0111
0110
0109
0108
0107
0106
0105
0104
0103
0102
-4
0
0801
0402
1202
0803
0404
1204
0805
0406
1206
0807
0408
1208
0809
0410
1210
0811
0412
1212
0813
0414
1214
0815
0
Source: Treasury.
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Central Bank of the Republic of Turkey
The comprehensive fiscal stimulus packages and financial relief program implemented in 2009 against the
adverse effects of the global crisis caused public deficit and debt stock to soar globally, particularly across
advanced economies. In addition, the crisis-led economic contraction caused tax revenues to fall,
accelerating the rise in budget deficits. In line with the global fiscal trends, budget deficit and debt stock to
GDP ratio also increased notably in Turkey in 2009. In the subsequent years, however, the gradual
withdrawal of fiscal incentives, collection of higher tax revenues on the back of the robust economic
recovery and steps taken to promote budget discipline helped improve fiscal balances (Charts 1 and 2),
causing domestic borrowing rates to drop dramatically and the maturity of borrowing to re-settle on an
upward track (Charts 3 and 4).
The lower output capacity and reduced tax revenues during the global crisis had negative repercussions
on budget balances across emerging economies, including Turkey. The ratio of budget deficit to GDP
adjusted for purchasing power parity in such economies climbed to 5 percent in 2009 from almost zero in
2007 (IMF, 2010). Yet, the fact that the emerging economies had relatively lower budget deficit and debt
stock at the onset of the crisis and that they adopted less comprehensive fiscal stimulus packages
afterwards had a major impact on their fiscal performance. Accordingly, emerging economies saw their
budget balances recover more rapidly during the post-crisis period, also given their relatively faster
rebound.
On the fiscal balances front, Turkey performed much stronger than other emerging market economies,
particularly after the global crisis, owing to the sustained fiscal discipline. According to IMF forecasts,
Turkey’s general government budget balance to GDP ratio and general government primary balance to
GDP ratio are expected to be -1.4 percent (Chart 5) and 1.4 percent (Chart 6), respectively, in 2015. Both
ratios are notably better than those for other emerging economies.
Chart 5. 2015 Forecasts for General Government
Budget Balance
Chart 6. 2015 Forecasts for General Government
Primary Balance
(Percent of GDP)
-8
(Percent of GDP)
-7
2
1
-6
0
-5
-4
-1
-3
-2
-2
-3
Philippines
Turkey
Peru
Romania
China
Thailand
Chile
Indonesia
Hungary
Poland
Colombia
Malaysia
Russia
Argentina
Mexico
South Africa
Ukraine
Croatia
Brazil
India
0
-4
Philippines
Turkey
Brazil
Ukraine
Hungary
Colombia
Romania
Peru
Poland
Croatia
Indonesia
South Africa
Thailand
China
Mexico
Malaysia
Argentina
Chile
India
Russia
-1
Source: IMF Fiscal Monitor, April 2015.
Similarly, the IMF also estimates that Turkey’s public debt stock to GDP ratio and gross financing need2 to
GDP ratio will amount to 33.4 percent (Chart 7) and 5.7 percent (Chart 8), respectively, in 2015. Both ratios,
which are critical for macroeconomic stability, appear significantly lower than the averages of emerging
economies.
Gross financing need for a certain year is the sum of the public borrowing requirement (general government budget deficit) and the maturing
government debt of that year.
2
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Chart 7. 2015 Forecasts for Public Debt Stock
Chart 8. 2015 Forecasts for Public Financing Needs
(Percent of GDP)
100
(Percent of GDP)
25
80
20
60
15
40
10
20
5
Chile
Russia
Peru
Indonesia
Turkey
Philippines
Romania
Colombia
China
South Africa
Thailand
Poland
Argentina
Mexico
Malaysia
India
Brazil
Hungary
Croatia
Ukraine
Peru
Chile
Indonesia
China
Russia
Turkey
Colombia
Philippines
Romania
Malaysia
Thailand
Mexico
Poland
Argentina
India
South Africa
Brazil
Ukraine
Croatia
Hungary
0
0
Source: IMF Fiscal Monitor, April 2015.
Turkey’s
relatively higher current account deficit and the recent uncertainties surrounding international
financial markets caused CDS premiums to rise across all emerging economies, including Turkey (Charts 9
and 10). The CBRT’s new monetary policy framework, which has been in effect since end-2010 to observe
both price stability and financial stability, has been effective in restraining macrofinancial risks as well as
improving the current account. Likewise, macroprudential measures adopted by the BRSA contributed
largely to these efforts. Along with the cautious fiscal stance, the implementation of the new monetary
policy framework and the adoption of macroprudential policies have strengthened Turkey’s resilience
against external uncertainties.
Chart 9. 2015 Forecasts for Current Account Balance
(Percent of GDP)
Chart 10. Selected CDS Rates
(5-year, Basis Points)
6
400
4
350
Brazil
Turkey
South Africa
China
Mexico
Poland
Malaysia
300
2
250
0
200
-2
150
-4
100
Source: WEO, April 2015.
In
50
0615
0115
0814
0314
1013
0513
1212
0712
0212
0911
0411
1110
0610
0
0110
Colombia
South Africa
Peru
Turkey
Brazil
Indonesia
Mexico
Poland
Argentina
Ukraine
India
Chile
Romania
Malaysia
Croatia
China
Thailand
Hungary
Russia
Philippines
-6
Source: Bloomberg.
conclusion, compared to its peers in other emerging economies, Turkey exhibits a favorable fiscal
performance and has a relatively larger room for maneuvering fiscal policies, which may discretionarily be
implemented to restore macroeconomic stability. Together with the robustness of the financial system, this
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has been one of the major drivers of Turkey’s improvement in relative riskiness and the decline in real rates
during and after the global crisis. It is crucial to maintain and strengthen these fiscal achievements in the
current environment of elevated downside risks on capital flows to emerging economies fueled by
declining global risk appetite amid heightened uncertainties over global financial markets. Any measure
that would ensure the sustainability of fiscal discipline and reduce the savings deficit will support
macroeconomic stability and contribute positively to social welfare by keeping long‐term interest rates at
low levels.
REFERENCES
IMF, 2010, Fiscal Monitor, May.
, 2015a, Fiscal Monitor, April.
, 2015b, WEO, April.
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7. Medium-Term Forecasts
This chapter summarizes the underlying forecast assumptions and presents the medium-term
inflation and output gap forecasts as well as the monetary policy outlook for the upcoming 3-year
horizon.
7.1. Current State, Short-Term Outlook and Assumptions
Financial Conditions
The environment of uncertainty, which dominated the global financial markets throughout 2015,
led to volatility in the third quarter as well. Signs of slowdown in emerging economies spurred by the
adverse outlook in China along with the perceived vagueness regarding the Fed’s future monetary
policy stood out as the prominent causes of the volatility in markets. In the first half of the third quarter,
financial markets were mostly driven by expectations of a policy rate hike by the Fed; while following
the FOMC meeting in September, markets pushed policy rate hike expectations into spring 2016.
Against these developments accompanied by the policy rate cut by the People’s Bank of China in late
August, the tumbling global risk appetite in the third quarter reversed through the end of the quarter.
Amid the subdued global risk appetite and rising sovereign risk premiums, currencies of emerging
economies have depreciated against the US dollar since the July Inflation Report; however, these
losses were partially taken back thanks to the recent rebound in the global risk appetite.
In the third quarter, external developments in addition to internal uncertainties and geopolitical
developments also led to deterioration in the financial market indicators in Turkey. The Turkish lira
depreciated on par with the currencies of other emerging economies, and market rates particularly
longer than one year registered an increase. Amid the developments in loan standards and rates, the
FCI got remarkably tighter in the third quarter. Meanwhile, the CBRT maintained its tight monetary
policy stance. The share of marginal funding rose gradually within the CBRT funding and the average
funding rate was increased above the previous Report’s readings. On the other hand, remuneration of
TL reserve requirements by the CBRT was raised in September, which constituted an improving step for
the loans-to-deposits ratio of the banking sector.
Inflation
Amid developments in food and core goods prices, annual consumer inflation posted a quarteron-quarter increase by around 0.75 points in the third quarter of 2015 and rose to 7.95 percent,
remaining above projections of the July Inflation Report. Despite the improvement in the second
quarter, unprocessed food prices accelerated in the third quarter and remained higher than implied
by the July Inflation Report’s assumptions. Moreover, the ongoing depreciation of the Turkish lira not
only pushed the core goods inflation up, but also limited the positive effects of the decline in
international oil prices and import prices on domestic prices in the third quarter. However, the mild
outlook in aggregate demand conditions limited the pass-through of the depreciation in the Turkish lira
to non-energy items. Services inflation posted a slight fall due mostly to the base effect, yet inflation
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increased in subcategories sensitive to food prices and the exchange rate. Against this background,
the underlying trend of inflation remained above target-consistent levels despite a slight improvement
in quarterly terms.
Demand Conditions
In the second quarter of 2015, economic activity followed a stronger course than envisioned in
the July Inflation Report. The GDP rose by 3.8 percent year-on-year in the second quarter, which is
mostly attributed to the industrial value added. Accordingly, the output gap was revised slightly
upwards for the second quarter of 2015 (Table 7.1.1 and Chart 7.2.3). On the expenditures side,
quarterly growth was mostly fed by private investments, while consumption demand followed a
moderate course. The contribution of net exports to growth proved negative in the second quarter.
Third-quarter data suggest that the final domestic demand may add less to growth. In fact, the
weak consumer confidence and tighter financial conditions curbed the production and imports of
consumption goods in the July-August period, and sales of automobiles fell in the third quarter. Investor
confidence remained sluggish, yet improved slightly in the third quarter. Accordingly, production of
machinery and equipment posted a quarterly increase during July and August, whereas imports
thereof registered a decline. Thus, the output gap is assessed to have a downside effect on inflation in
the third quarter.
Chart 7.1.1. Export-Weighted Global Economic Activity Index*
(2008Q2=100)
114
112
October 2015
July 2015
114
112
110
108
108
106
106
104
104
102
102
100
100
1211
0312
0612
0912
1212
0313
0613
0913
1213
0314
0614
0914
1214
0315
0615
0915
1215
0316
0616
0916
1216
110
* For methodology, see Box 2.1, Inflation Report 2010-II.
Source: Bloomberg, Consensus Forecasts, CBRT.
The slowdown in global economy coupled with geopolitical developments pulled down exports
of goods and services in the second quarter. The third quarter was also marked by downward risks to
external demand due to geopolitical developments and vagueness regarding the monetary policies
of advanced economies. In fact, the annual growth rate of export-weighted global production index
revised by September forecasts posted a limited decline compared to the July Inflation Report
(Chart 7.1.1). Meanwhile, an evaluation of non-gold quantity indices, which are better indicators of
external trade, reveals that the export quantity index excluding gold increased in the second quarter
and August. Moreover, the rising demand from EU members affects Turkey’s exports positively. Against
this background, the growth composition is expected to shift gradually in favor of net exports in the
upcoming period.
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Oil, Import and Food Prices
The fall in international commodity prices, especially energy, continued into the third quarter.
Mostly backed by the slack in China and other emerging countries, this downtrend caused import
prices in Turkey to decline in USD terms. Therefore, assumptions for crude oil prices and USDdenominated import prices were revised downward (Charts 7.1.2 and 7.1.3). On an annual basis, the
average crude oil price assumption was decreased from 59 USD to 54 USD for 2015 and from 63 USD to
54 USD for 2016. Additionally, assumptions for annual percentage changes in average import prices
were revised downwards by 1.9 points each for 2015 and 2016. Meanwhile, year-end projections for
unprocessed food prices have been left unchanged since the second quarter.
Chart 7.1.2.
Chart 7.1.3.
Revisions in Oil Prices*
Revisions in Import Prices*
(USD/bbl)
(USD, 2010=100)
October 2015
July 2015
October 2015
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
115
110
110
105
105
100
100
95
95
90
85
85
1213
0214
0414
0614
0814
1014
1214
0215
0415
0615
0815
1015
1215
0216
0416
0616
0816
1016
1216
1213
0214
0414
0614
0814
1014
1214
0215
0415
0615
0815
1015
1215
0216
0416
0616
0816
1016
1216
40
90
Actual
Actual
40
July 2015
115
* Shaded area denotes the forecast horizon.
Source: Bloomberg, CBRT.
Fiscal Policy and Tax Adjustments
Medium-term forecasts are based on the assumption that tax adjustments and administered
prices would be consistent with inflation targets and automatic pricing mechanisms. The medium-term
fiscal policy stance is based on the MTP projections covering the 2016-2018 period. Accordingly, the
projections envisage slightly higher revenues and expenditures as a ratio of the GDP in 2015 and a
somewhat slower decline in these ratios in the following years. Conditional on this outlook, inflation is
expected to improve gradually and reach the 5-percent target in the medium term.
Table 7.1.1. Revisions in Assumptions
July 2015
October 2015
Output Gap
2015Q2
2015Q3
-1.60
-1.30
-1.40
-1.45
Food Prices
(Year-end Percent Change)
2015
2016-17
8.0
8.0
8.0
8.0
2015
2016
-12.8
1.3
-14.7
-0.6
Oil Prices
(Average, USD)
2015
2016
59
63
54
54
Export-Weighted Global Production Index
(Average Annual Percent Change)
2015
2016
1.9
1.9
2.4
2.3
Import Prices
(Average Annual Percent Change, USD)
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Central Bank of the Republic of Turkey
7.2. Medium-Term Forecasts
Medium-term forecasts are based on the framework that the tight monetary policy stance will
be maintained until there is a significant improvement in the inflation outlook. Moreover, the annual
loan growth rate is envisioned to hover around reasonable levels, also on the back of macroprudential
measures. Accordingly, inflation is expected to be, with 70 percent probability, between 7.4 percent
and 8.4 percent (with a mid-point of 7.9 percent) at end-2015, and between 5.0 percent and 8.0
percent (with a mid-point of 6.5 percent) at end-2016. Inflation is projected to near 5 percent at end2017 and stabilize around 5 percent in the medium term (Chart 7.2.1).
Chart 7.2.1.
Inflation and Output Gap Forecasts*
(Percent)
Forecast Range
Uncertainty Band
Year-End Inflation Target
Output Gap
12
12
10
10
Forecast
Horizon
8
8
0918
0618
0318
1217
0917
0617
-4
0317
-4
1216
-2
0916
-2
0616
0
0316
0
1215
2
0915
2
0615
4
0315
4
1214
6
0914
6
* Shaded area denotes the 70 percent confidence interval for the forecast.
Source: CBRT.
The rise in core inflation due to the exchange rate depreciation in the third quarter brought the
end-2015 inflation forecast up by 1.2 points compared to the July Inflation Report forecast. Yet, the
improvement in import prices in the inter-reporting period pulled down the year-end inflation forecast
by 0.2 points. Accordingly, the end-2015 inflation forecast, which was set as 6.9 percent in the July
Inflation Report, was revised upwards by 1 point (Chart 7.2.2).
Similarly, the end-2016 inflation forecast was revised upward by 1 point to 6.5 percent from 5.5
percent in the July Inflation Report. The upward revision in the end-2015 inflation forecast and the
delayed effects of exchange rate movements are expected to drive the end-2016 inflation forecast up
by 0.6 and 0.8 points, respectively. However, the decline in the average import price assumption for
2016 and the small downward revision to the output gap forecast for 2016 brought the end-2016
inflation forecast down by 0.3 and 0.1 points, respectively, from the previous Report.
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Revised output gap forecasts are displayed in Chart 7.2.3. As the national income realizations in
the second quarter of 2015 proved more favorable than envisioned in the previous reporting period,
output gap values pertaining to this period were revised slightly upwards. Meanwhile, the output gap
forecasts for the third and fourth quarters of 2015 were revised slightly downwards compared to the
July Inflation Report. Thus, the output gap is expected to keep the end-2015 inflation forecast intact
compared to the previous reporting period.
Chart 7.2.2.
Chart 7.2.3.
Inflation Forecasts
Output Gap Forecasts
10
1.0
10
1.0
July 2015
9
Actual
8
8
October 2015
7
7
6
6
-1.0
Source: TURKSTAT, CBRT.
0918
0618
0318
1217
0917
0617
0317
1216
0916
0616
0615
-2.0
0316
-2.0
0918
0618
0318
1217
0917
0617
0317
1216
0916
0616
0316
1215
4
0915
4
0615
-1.0
October 2015
5
July 2015
0315
0.0
1215
5
0.0
0915
9
Source: CBRT.
Unpredictable price fluctuations in items beyond the monetary policy domain, such as
unprocessed food and tobacco, are among major factors that cause a deviation in inflation forecasts.
Hence, inflation forecasts excluding unprocessed food and tobacco prices are publicly announced.
Accordingly, inflation forecasts excluding unprocessed food, tobacco and alcoholic beverages are
presented in Chart 7.2.4. The inflation indicator as measured above is expected to decline gradually to
4.5 percent.
Chart 7.2.4.
Inflation Forecast Excluding Unprocessed Food, Tobacco and Alcoholic Beverages*
(Percent)
Forecast Range
Output Gap
0918
0618
0318
-4
1217
-2
-4
0917
-2
0617
0
0317
2
0
1216
2
0916
4
0616
4
0316
6
1215
8
6
0915
8
0615
10
0315
10
1214
12
0914
12
* Shaded area denotes the 70 percent confidence interval for the forecast.
Source: CBRT.
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Comparison of the CBRT’s Forecasts with Inflation Expectations
It is critical that economic agents take the inflation target as a benchmark in their plans and
contracts, and focus on the underlying trend of medium-term inflation, rather than temporary price
fluctuations. Likewise, it is crucial that the CBRT’s current inflation forecasts be compared with inflation
expectations of other economic agents to serve as a reference guide. Accordingly, 12-month and 24month-ahead inflation expectations of the Survey of Expectations’ respondents are above the CBRT’s
baseline scenario forecasts (Table 7.2.1). Furthermore, the modest increase in inflation expectations in
the inter-reporting period necessitates close monitoring of expectations and the pricing behavior.
Table 7.2.1.
CBRT Inflation Forecasts and Expectations
CBRT Forecast
CBRT Survey of Expectations*
Inflation Target**
2015 Year-end
7.9
8.3
5.0
12-month-ahead
6.7
7.3
5.0
24-month-ahead
5.6
6.9
5.0
* October 2015 survey period results.
** Calculated by linear interpolation of year-end inflation targets for 2015- 2016.
Source: CBRT.
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Charts
1. OVERVIEW
Chart 1.1.
Chart 1.2.
Chart 1.1.1.
Chart 1.1.2.
Chart 1.1.3.
Chart 1.1.4.
Chart 1.1.5.
Chart 1.1.6.
Chart 1.1.7.
Chart 1.1.8.
Chart 1.2.1.
Chart 1.2.2.
Chart 1.2.3.
Chart 1.2.4.
Chart 1.2.5.
Chart 1.2.6.
Chart 1.2.7.
Chart 1.2.8.
Chart 1.2.9.
Chart 1.2.10.
Chart 1.3.1.
VIX and US Interest Rate Volatility
Portfolio Flows to Emerging Economies and JPMVXYEM Volatility Index
CBRT Funding
CBRT Rates and BIST Interbank O/N Repo Rates
Money Market Rates
Yield Curve
Maturity of Non-Deposit Liabilities
Loans/Deposits
Annual Loan Growth
Annualized Loan Growth
Inflation Forecasts and Realizations
Inflation Forecasts and Realizations Excluding Unprocessed Food and Tobacco
Core Inflation Indicators SCA-H and SCA-I
Food and Non-Food Prices
GDP and Final Domestic Demand
Annual GDP Growth and Contributions from the Production Side
GDP and Final Domestic Demand Growth
Current Account Balance
Revisions in Oil Prices
Revisions in Import Prices
Inflation and Output Gap Forecasts
1
1
2
2
3
3
4
4
5
5
5
5
6
6
7
7
7
7
8
8
9
2. INTERNATIONAL ECONOMIC DEVELOPMENTS
Chart 2.1.1.
Chart 2.1.2.
Chart 2.1.3.
Chart 2.1.4.
Chart 2.1.5.
Chart 2.1.6.
Chart 2.2.1.
Chart 2.2.2.
Chart 2.2.3.
Chart 2.2.4.
Chart 2.3.1.
Chart 2.3.2.
Chart 2.3.3.
Chart 2.3.4.
Chart 2.4.1.
Chart 2.4.2.
Chart 2.4.3.
Global Growth Rates
Regional Growth Rates
Global PMI
Manufacturing Industry PMI
Emerging Markets PMI
Export-Weighted Global Production Index
S&P Goldman Sachs Commodity Price Indices
Crude Oil (Brent) Prices
CPI Inflation in Advanced and Emerging Economies
Core Inflation in Advanced and Emerging Economies
Exchange Rate Volatility
Policy Rate Projections of the FOMC Members
10-Year Treasury Bond Yields
Weekly Fund Flows to Emerging Economies
Policy Rate Changes in Advanced Economies between January 2014 and
October 2015
Policy Rate Changes in Emerging Economies between January 2014 and October
2015
US Federal Funds Futures
14
14
14
14
15
15
16
16
17
17
18
18
18
18
19
19
20
3. INFLATION DEVELOPMENTS
Chart 3.1.
Chart 3.2.
Chart 3.1.1.
Chart 3.1.2.
Chart 3.1.3.
Chart 3.1.4.
Chart 3.1.5.
Chart 3.1.6.
Chart 3.1.7.
Chart 3.1.8.
Chart 3.1.9.
Chart 3.1.10.
Chart 3.1.11.
Chart 3.1.12.
Chart 3.1.13.
Chart 3.2.1.
Chart 3.2.2.
Chart 3.2.3.
Chart 3.2.4.
Chart 3.2.5.
Chart 3.2.6.
Chart 3.3.1.
Chart 3.3.2.
Chart 3.3.3.
CPI by Subcategories
Contributions to Annual CPI
Prices of Core Goods and Services
Core Goods Prices
Core Goods Prices
Prices of Services by Subcategories
Prices of Services by Subcategories
Prices of Catering Services and Food
Prices of Other Services and the Currency Basket
Prices of Services
Diffusion Index for Prices of Services
Core Inflation Indicators
Core Inflation Indicators
Diffusion Indices for CPI and SCA-H
Core Inflation Indicators SATRIM and FCORE
Food and Energy Prices
Food Prices
Selected Food Prices and CPI
Food and Non-Food Prices
Domestic Energy Prices and Crude Oil
Domestic Energy Prices
Domestic Producer and Consumer Prices
Manufacturing Prices
Import Prices in USD and TL
Inflation Report 2015-IV
21
21
22
23
23
24
24
24
24
25
25
25
25
26
26
27
27
27
27
28
28
29
29
29
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Central Bank of the Republic of Turkey
Chart 3.3.4.
Chart 3.4.1.
Chart 3.4.2.
Chart 3.4.3.
Chart 3.4.4.
Manufacturing Industry Prices Excluding Petroleum and Basic Metal Products
12-Month and 24-Month-Ahead Inflation Expectations
Inflation Expectations
Distribution of 12-Month-Ahead Inflation Expectations
Distribution of 24-Month-Ahead Inflation Expectations
29
30
30
30
30
4. SUPPLY AND DEMAND DEVELOPMENTS
Chart 4.1.1.
Chart 4.1.2.
Chart 4.1.3.
Chart 4.1.4.
Chart 4.1.5.
Chart 4.1.6.
Chart 4.2.1.
Chart 4.2.2.
Chart 4.2.3.
Chart 4.2.4.
Chart 4.2.5.
Chart 4.2.6.
Chart 4.2.7.
Chart 4.2.8.
Chart 4.2.9.
Chart 4.2.10.
Chart 4.2.11.
Chart 4.2.12.
Chart 4.2.13.
Chart 4.2.14.
Chart 4.2.15.
Chart 4.2.16.
Chart 4.2.17.
Chart 4.2.18.
Chart 4.3.1.
Chart 4.3.2.
Chart 4.3.3.
Chart 4.3.4.
Chart 4.3.5.
Chart 4.3.6.
Chart 4.3.7.
Chart 4.3.8.
5.
Annual GDP Growth and Contributions from the Production Side
Quarterly GDP Growth and Contributions from the Production Side
Industrial Production Index
Industrial Production Index
BTS Registered Orders
PMI and PMI Production
Annual GDP Growth and Contributions from the Demand Side
Domestic Private Consumption by Sub-Components
Private Investments and the GDP
Private and Public Sector Demand
Production and Imports of Consumption Goods
Domestic Sales of Automobiles and Light Commercial Vehicles
Production and Imports of Machinery and Equipment
Production and Imports of Mineral Products
Exports, Imports and the GDP
Export and Import Quantity Indices
GDP and Imports in the Euro Area
GDP and Imports in MENA
Global GDP and Imports
GDP Growth
GDP and Final Domestic Demand Growth
Shares in National Income
Current Account Balance
Output Gap
Unemployment Rates
Non-Farm Employment and Non-Farm Labor Force
Contributions to Monthly Changes in Non-Farm Employment
Industrial Production, Industrial Employment and PMI Employment
Construction Employment and Production of Non-Metallic Mineral Products
Consumer Confidence, Expectation of Number of Unemployed and Non-Farm
Unemployment Rate
Non-Farm Hourly Labor Cost
Unit Labor Cost
32
32
32
32
33
33
34
34
34
34
35
35
35
35
36
36
37
37
38
38
38
38
39
39
39
39
40
40
41
41
41
41
FINANCIAL MARKETS AND FINANCIAL INTERMEDIATION
Chart 5.1.
Chart 5.2.
Chart 5.1.1.
Chart 5.1.2.
Chart 5.1.3.
Chart 5.1.4.
Chart 5.1.5.
Chart 5.1.6.
Chart 5.1.7.
Chart 5.1.8.
Chart 5.1.9.
Chart 5.1.10.
Chart 5.1.11.
Chart 5.1.12.
Chart 5.1.13.
Chart 5.1.14.
Chart 5.1.15.
Chart 5.1.16.
Chart 5.1.17.
Chart 5.1.18.
Chart 5.1.19.
Chart 5.1.20.
Chart 5.1.21.
Chart 5.1.22.
Chart 5.1.23.
Chart 5.1.24.
Chart 5.1.25.
Chart 5.1.26.
Chart 5.1.27.
Chart 5.1.28.
Chart 5.1.29.
98
Financial Conditions and Credit Growth
Contributions to FCI
10-Year US Treasury Bond Rates and MOVE Index
JPMVXYEM Volatility Index
Regional EMBI Indices
Changes in CDS
Portfolio Flows to Emerging Economies
Cumulative Portfolio Flows to Emerging Economies
Portfolio Flows to Turkey
Cumulative Portfolio Flows to Turkey
TL and Emerging Market Currencies vs USD
Currency Basket and the Risk Premium
Implied Volatility of Exchange Rates
25 Delta Risk Reversal Positions at Various Maturities
CBRT Funding
CBRT Rates and BIST Repo Rates
Market Funding
Bank’s Funding Costs at the Money Markets
Market Rates
Yield Curve
FX Required Reserve Ratios
Non-Deposit FX Liabilities by Maturity
Loans/Deposits
CBRT FX Reserve
5-Year Market Rates
6-Month Market Rates
5-Year Market Rates
6-Month Market Rates
Expected Overnight Rates at the BIST Repo and Reverse Repo Market
Inflation Expectations
2-Year Real Interest Rates for Turkey
57
57
58
58
59
59
59
59
60
60
60
60
61
61
62
62
63
63
63
63
64
64
64
64
65
65
66
66
66
66
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Chart 5.1.30.
Chart 5.1.31.
Chart 5.1.32.
Chart 5.1.33.
Chart 5.1.34.
Chart 5.2.1.
Chart 5.2.2.
Chart 5.2.3.
Chart 5.2.4.
Chart 5.2.5.
Chart 5.2.6.
Chart 5.2.7.
Chart 5.2.8.
Chart 5.2.9.
Chart 5.2.10.
Chart 5.2.11.
Chart 5.2.12.
6.
2-Year Real Interest Rates
Consumer Loan Rates
TL Commercial Loan Rates
TL Commercial Loan Rate and Deposit Interest Rate
Indicators on Banks’ Funding Costs
Domestic Credit Stock and Net Domestic Credit Use
External Credit Stock and Net External Credit Use
Loan Growth
Loan Growth
Consumer Loan Growth
Consumer Loan Growth
Commercial Loan Growth
TL and FX Commercial Loan Growth
Loan and Deposit Growth
M2 Money Supply and Loans
Balance Sheet Decomposition of M3
Currency in Circulation and Current Consumption Spending
67
67
67
68
68
68
68
69
69
70
70
70
70
71
71
72
72
PUBLIC FINANCE
Chart 6.1.1.
Chart 6.1.2.
Chart 6.1.3.
Chart 6.1.4.
Chart 6.2.1.
Chart 6.2.2.
Chart 6.2.3.
Chart 6.2.4.
Chart 6.2.5.
Chart 6.2.6.
Central Government Budget Balance
Central Government Budget Revenues and Primary Expenditures
Real Tax Revenues
Real VAT and SCT Revenues
Public Debt Stock Indicators
Composition of the Central Government Debt Stock
Average Maturity of the Domestic Cash Borrowing and Term-to-Maturity of the
Domestic Debt Stock
Borrowing By Bond Issue
Total Domestic Debt Rollover Ratio
Average
Toplam
Maturity
İç Borç and
Çevirme
Interest
Oranı
Rates of Borrowing at Discount Auctions
82
82
84
84
85
85
85
85
86
86
7. MEDIUM-TERM FORECASTS
Chart 7.1.1.
Chart 7.1.2.
Chart 7.1.3.
Chart 7.2.1.
Chart 7.2.2.
Chart 7.2.3.
Chart 7.2.4.
Export-Weighted Global Economic Activity Index
Revisions in Oil Prices
Revisions in Import Prices
Inflation and Output Gap Forecasts
Inflation Forecasts
Output Gap Forecasts
Inflation Forecast Excluding Unprocessed Food, Tobacco and Alcoholic Beverages
Inflation Report 2015-IV
92
93
93
94
95
95
95
99
Central Bank of the Republic of Turkey
Tables
2. INTERNATIONAL ECONOMIC DEVELOPMENTS
Table 2.1.1.
Growth Forecasts for end-2015 and end-2016
15
Table 2.2.1.
Inflation Forecasts for end-2015 and end-2016
17
3. INFLATION DEVELOPMENTS
Table 3.1.1.
Prices of Goods and Services
23
Table 3.3.1.
D-PPI and Subcategories
28
6. PUBLIC FINANCE
Table 6.1.1.
Central Government Budget Aggregates
81
Table 6.1.2.
Central Government Primary Expenditures
82
Table 6.1.3.
Central Government General Budget Revenues
83
7. MEDIUM-TERM PROJECTIONS
Table 7.1.1.
Revisions in Assumptions
93
Table 7.2.1.
CBRT Inflation Forecasts and Expectations
96
100
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Boxes in Previous Inflation Reports
2015-III
3.1. Information Content of Credits in Explaining Inflation
3.2. Firm Strategy, Consumer Behavior and Taxation in the Turkish Tobacco Market
3.3. The Exports-Inflation Relationship in Food Products
4.1. Using Survey Data in Near-Term GDP Forecasts
4.2. The Effect of Oil Prices on Exports
6.1. Government Spending Multiplier
2015-II
3.1. The Impact of Reducing Supply Chain Barriers on the Prices of Fresh Fruits and Vegetables
3.2. Investigating the Effect of Fuel Prices on Fresh Fruit and Vegetable Prices through the Transportation Cost Channel
3.3. Firm Cost Structure and Cost-Push Factors of Inflation
4.1. Effects of Parity and Energy Prices on the Non-Gold Export and Import Prices
4.2. Minimum Wage and Wage Distribution
4.3. Some Observations on the Convergence Experience of Turkey
4.4. Unobserved Differences in Firms’ Decisions on Exports and Uncertainty
4.5. Unemployment Flow Dynamics in Turkey
2015-I
3.1. Effects of Oil Prices on Consumer Prices
3.2. Pass-Through of International Grain Prices to Domestic Prices
3.3. The Role of Base Effects on Consumer Inflation in 2015
4.1. Liability Dollarization and Growth Performance of Non-Financial Firms in Turkey
4.2. Macroeconomic Effects of International Energy Prices
5.1. Remuneration of Required Reserves
7.1. Reasons for the Changes in end-2014 Inflation Forecasts
2014-IV
2.1. Determinants of Bond Flows to Emerging Markets: How Do They Change Over Time?
3.1. Sensitivity of Inflation to Output Gap and Credit
4.1. Current Account Balance Fluctuations and Current Account Deficit Corrections
5.1. Non-Core Liabilities
5.2. International Capital Flows and Domestic Loan Growth
5.3. Capital Flows and Loan Growth: The Impact of Macroprudential Measures
2014-III
3.1. The Sensitivity of Inflation to Business Cycles in Turkey
4.1. Seasonal Adjustment of GDP: Direct vs. Indirect Approach
4.2. Real and Nominal Balancing of Turkey’s External Trade
5.1. Credit Growth and the Current Account Balance
5.2. The Relationship between Consumer and Commercial Loans and the Current Account Deficit in Turkey
5.3. The Relationship between the System’s Funding Need and TL Loans
5.4. Firms’ Access to Credit in Turkey: A Survey-Based Analysis
2014-II
4.1. Revisions to Construction Investment Expenditures
4.2. Capital Flows Towards Turkey and Emerging Economies in 2013: Effects of the Fed’s Policy Change
5.1. Forecasting Exchange Rates Using Yield Curves
5.2. Foreign Currency Liabilities and Exchange Rate Risk of Firms in Turkey
2014-I
Inflation Report 2015-IV
101
Central Bank of the Republic of Turkey
Abbreviations
AMA
ARDL
bbl
BIS
BIST
BRSA
BTS
CBRT
CDS
CPI
D-PPI
ECB
EM/VXY
EMBI
EPFR
EU
EU27
EUR
FCI
FCORE
Fed
FOMC
FX
GDP
GMM
IMF
JPMVXYEM
MENA
MOVE
MTP
O/N
OECD
R&D
PMI
PPI
ROM
S&P
SATRIM
SCA
SCA-H
SCA-I
SCT
SEEs
SMEs
SSI
TL
TURKSTAT
UK
US
USA
USD
VAT
VXY
WEO
102
Automobile Manufacturers Association
Autoregressive Distributed Lag Model
Barrel
Bank for International Settlements
Borsa İstanbul
Banking Regulation and Supervision Agency
Business Tendency Survey
Central Bank of the Republic of Turkey
Credit Default Swap
Consumer Price Index
Domestic Producer Price Index
European Central Bank
JP Morgan Volatility Index for Emerging Market Currencies
Emerging Markets Bond Index
Emerging Portfolio Fund Research
European Union
EU 27 Member States
The Euro Currency
Financial Conditions Index
Factor Model Based Core Inflation Indicator
Federal Reserve Bank
Federal Open Markets Committee
Foreign Exchange
Gross Domestic Product
Generalized Method of Moments
International Monetary Fund
JPMorgan Emerging Market Volatility Index
Middle East and North Africa
Merrill Lynch Option Volatility Estimate
Medium-Term Program
Overnight
Organization for Economic Cooperation and Development
Research and Development
Purchasing Managers Index
Producer Price Index
Reserve Options Mechanism
Standard and Poor’s
Seasonally Adjusted Trimmed Mean Inflation
Special CPI Aggregate
Special CPI Aggregate H Index
Special CPI Aggregate I Index
Special Consumption Tax
State Economic Enterprises
Small and Medium-Sized Enterprises
Social Security Institution
Turkish Lira
Turkish Statistical Institute
United Kingdom
United States
United States of America
United States Dollar
Value Added Tax
JP Morgan Volatility Index for G7 Currencies
World Economic Outlook
Inflation Report 2015-IV
Central Bank of the Republic of Turkey
2015 Calendar for MPC Meetings, Inflation Report and Financial Stability Report
MPC Meetings
Summary of MPC
Inflation Report
January 20, 2015
January 27, 2015
January 27, 2015
February 24, 2015
March 3, 2015
March 17, 2015
March 24, 2015
April 22, 2015
April 30, 2015
May 20, 2015
May 27, 2015
June 23, 2015
June 30, 2015
July 23, 2015
July 30, 2015
August 18, 2015
August 25, 2015
September 22, 2015
October 1, 2015
October 21, 2015
October 28, 2015
November 24, 2015
December 1, 2015
December 22, 2015
December 29, 2015
Inflation Report 2015-IV
Financial Stability Report
April 30, 2015
May 29, 2015
July 30, 2015
October 28, 2015
November 30, 2015
103