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  • CENTRAL BANK OF THE REPUBLIC OF TURKEY

    Growth and Financial System

    1

    February, 2011

    Durmu YILMAZ

    Governor

    Growth and Financial System

  • I. Recent Developments in the Turkish Economy

    II. Monetary Policy

    III. Policy Outcomes

    Presentation Outline

    2

    III. Policy Outcomes

  • I. Recent Developments

    in the Turkish Economy

    3

    in the Turkish Economy

  • 4

    6

    8

    10

    Rapid Recovery

    75

    80

    85 8

    9

    10

    11

    Growth and Inflation Capacity Utilization and Unemployment Rates

    Core Inflation* (y-y change) Capacity Utilization

    -8

    -6

    -4

    -2

    0

    2

    12-08 03-09 06-09 09-09 12-09 03-10 06-10 09-10 12-10

    4444

    55

    60

    65

    70

    01-08 07-08 01-09 07-09 01-10 07-10 01-11

    11

    12

    13

    14

    15

    16

    Growth (q-q change, SA)

    Unemployment Rate(inverted, rhs)

    Source:: TURKSTAT, CBRT* I indexSource:: TURKSTAT, CBRT

  • 104

    108

    Turkeys External Demand Index*(June 2008=100)

    95

    100

    105

    110

    Domestic Demand and Exports(2008 Q1=100)

    Domestic DemandGlobal Economic Activity

    Index

    but unbalanced

    92

    96

    100

    2006 2007 2008 2009 2010 2011

    5

    * The shares of countries within the exports of Turkey and weighted GDP data are employed in the calculation of the external demand index of Turkey. Source: Bloomberg, Consensus Forecasts, IMF WEO, TURKSTAT, CBRT

    75

    80

    85

    90

    1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

    2005 2006 2007 2008 2009 2010

    Source: TURKSTAT, CBRT

    Goods and Services Exports

    Turkeys External Demand Index

  • 40

    60

    80

    100

    120

    20

    30

    40

    50

    Composition of Capital Flows (12-month rolling sum, billion USD)

    Portfolio Investments+ Deposits

    FDI

    Composition of Capital Flows

    Finance of Current Account Deficit (percentage of CAD)

    Short Term Credit + Portfolio Investments + Deposits

    -100

    -80

    -60

    -40

    -20

    0

    20

    40

    01-06 01-07 01-08 01-09 01-10-30

    -20

    -10

    0

    10

    20

    01-07 01-08 01-09 01-10

    6

    * After controlling for the effect of change in Decree No. 32Source: TURKSTAT, CBRT

    Private Sector Credit*

    Source: TURKSTAT, CBRT

    FDI

  • 80

    100

    120

    140

    Real Credit Volume

    Real GDP and Credit Volume(2008 Q1=100)

    10

    12

    14

    16

    Capital Flows and Credit Growth(percent)

    Change in Credit/GDP

    Accelaration in Credit Growth

    0

    20

    40

    60

    80

    1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

    2003 2004 2005 2006 2007 2008 2009 2010

    GDP

    Source: BRSA, TurkStat, CBRT

    0

    2

    4

    6

    8

    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

    2004 2005 2006 2007 2008 2009 2010

    Net Capital Flows/GDP

    Source:TurkStat, CBRT

    7

  • 2

    4

    6

    8

    Current Account Deficit(ratio to GDP, percent)

    Current Account Balance Excl. Energy

    Widening Current Account Deficit

    100

    110

    Exports and Imports(2008 Q1 = 100)

    Exports

    8

    Source: TurkStat, CBRT

    -8

    -6

    -4

    -2

    0

    2

    2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

    Current Account Balance

    70

    80

    90

    2005 2006 2007 2008 2009 2010

    Imports

    Source: TurkStat, CBRT

  • 0

    1

    2

    3

    20

    25

    30

    Strength of the Banking System

    TurkeyTurkey

    Capital Adequacy Ratio as of 2009 (percent)

    Return on Assets as of 2009(percent)

    -5

    -4

    -3

    -2

    -1

    La

    tvia

    Lith

    ua

    nia

    Es

    ton

    iaIr

    ela

    nd

    De

    nm

    ark

    Be

    lgiu

    mG

    erm

    an

    yF

    ran

    ce

    Ho

    llan

    dU

    nite

    dG

    ree

    ce

    Slo

    ve

    nia

    Au

    str

    iaS

    we

    de

    nIta

    lyP

    ort

    ug

    al

    Fin

    lan

    dL

    ux

    em

    bo

    Sp

    ain

    Ro

    ma

    nia

    Slo

    va

    kia

    Po

    lan

    dB

    ulg

    ari

    aC

    ze

    ch

    Hu

    ng

    ary

    Ma

    ltaT

    urk

    ey

    0

    5

    10

    15

    Por

    tuga

    l

    Gre

    ece

    Italy

    Slo

    veni

    a

    Spa

    in

    Fra

    nce

    Est

    onia

    Aus

    tria

    Sw

    eden

    Slo

    vaki

    a

    Irel

    and

    Lith

    uani

    a

    Pol

    and

    Latv

    ia

    Cze

    ch R

    ep.

    Ger

    man

    y

    Hun

    gary

    Fin

    land

    Uni

    ted

    Kin

    gdom

    Hol

    land

    Rom

    ania

    Den

    mar

    k

    Bul

    garia

    Bel

    gium

    Luxe

    mbo

    urg

    Tur

    key

    Mal

    ta

    9

    Source: Eurostat, CBT Source: Eurostat, CBT

  • Strength of the Banking System

    10

    12

    14

    16

    18

    200

    250

    300

    Loan to Deposit Ratio as of 2009 (percent)

    Non-Performing Loans Ratio as of 2009(percent)

    TurkeyTurkey

    10

    Source: Eurostat, CBT Source: Eurostat, CBT

    0

    2

    4

    6

    8

    10

    Fin

    land

    Mal

    ta

    Aus

    tria

    Por

    tuga

    l

    Den

    mar

    k

    Ger

    man

    y

    Slo

    vaki

    a

    Spa

    in

    Bel

    gium

    Fra

    nce

    Gre

    ece

    Tur

    key

    Rom

    ania

    Pol

    and

    Italy

    Hun

    gary

    Est

    onia

    Bul

    garia

    Latv

    ia

    Lith

    uani

    a

    0

    50

    100

    150

    Bel

    gium

    Luxe

    m

    Cze

    chG

    reec

    e

    Tur

    key

    Uni

    ted

    Pol

    and

    Ger

    ma

    Spa

    inB

    ulga

    ri

    Hol

    land

    Rom

    ani

    Mal

    ta

    Hun

    gar

    Por

    tuga

    Aus

    tria

    Fra

    nce

    Slo

    vaki

    Fin

    land

    Italy

    Slo

    veni

    Irel

    and

    Est

    onia

    Lith

    uani

    Latv

    ia

    Sw

    ede

    Den

    mar

    Turkey

  • 12

    16

    Ratio of FX-Indexed Consumer Loansto Total Consumer Loans

    (percent)

    5556 56

    53

    50

    60

    70

    Ratio of Household Liabilities to GDP(percent)

    EuropeanUnion

    Eastern

    Household Debt Remains Low

    8.6

    6.4

    4.8

    3.6 3.94.7

    3.3

    1.6 1.5

    0

    4

    8

    2003 2004 2005 2006 2007 2008 2009 2010 Jan2011

    Source: CBT

    810

    12 13

    17

    23

    2824

    0

    10

    20

    30

    40

    2005 2006 2007 2008

    EasternEurope

    Turkey

    Source: European Central Bank, CBT

    11

  • Budget Deficit

    PortugalPolandGreeceFranceIceland

    SpainUnited Kingdom

    United StatesIreland

    2010 Budget Deficit Estimates(percent of GDP)

    12

    -3.6

    -35-30-25-20-15-10-50

    SwitzerlandSwedenFinlandTurkey

    HungaryGermanyDenmark

    AustriaBelgium

    ItalyNetherlands

    RomaniaPortugal

    Source: Terasury, IMF, CBRT

    Maastricht Criterion (3%)

  • 70

    80

    90

    100

    110

    120

    70

    80

    90

    100

    110

    120

    Fiscal Discipline

    Public Debt Stock(Ratio to GDP)

    Developed G-20 Countries

    20

    30

    40

    50

    60

    70

    2000 2002 2004 2006 2008 2010 2012 2014

    20

    30

    40

    50

    60

    70

    Developing G-20 Countries

    *Medium-Term Program (2011 -2013) TargetsSource: IMF WEO October 2010, Treasury, BRSA, CBT

    Turkey*

    13

  • II. Monetary Policy

    14

    II. Monetary Policy

  • Phase-1: Full liquidity support (after the collapse of Lehman

    Brothers, September 2008)

    Phase-2: Exit Strategy (April 2010)

    Phases in Monetary Policy

    15

    Phase-3: New Policy Mix (starting from November 2010)

  • 15

    20

    25

    The Policy Rate and Interest Rate Corridor

    Policy Rate and Interest Rate Corridor(percent)

    Interest Rate Corridor

    0

    5

    10

    15

    01-08 05-08 09-08 01-09 05-09 09-09 01-10 05-10 09-10 01-11

    16

    Policy Rate

    Source: CBRT

  • Reserve Requirements as a Macroprudential Tool

    10

    12

    14

    Demand deposit

    Up to 1 Month

    1-3 Months

    Reserve Requirement Ratios(percent)

    End of remuneration

    17

    2

    4

    6

    8

    07-09 10-09 01-10 04-10 07-10 10-10 01-11

    1-3 Months

    3-6 Months

    6-12 Months

    Longer than 1 year

    Source: CBRT

  • Change Since the Start of the Crisis (percentage point)

    Reserve Requirements as a Macroprudential Tool

    2

    4

    6

    8

    Increases20.0 19.5

    15

    20

    25

    Current Rates (percent)

    18

    -6

    -4

    -2

    0

    Bra

    zil

    Tur

    key

    (TR

    Y)

    Chi

    na

    Per

    u

    Indo

    nesi

    a

    Rus

    sia

    Tur

    key

    (FX

    )

    Indi

    a

    Pol

    and

    Decreases