central bank of the republic of turkey€¦ · central bank of the republic of turkey growth and...

CENTRAL BANK OF THE REPUBLIC OF TURKEY

Growth and Financial System

1

February, 2011

Durmu ş YILMAZ

Governor


I. Recent Developments in the Turkish Economy

II. Monetary Policy

III. Policy Outcomes

Presentation Outline

2


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

Turkey’s 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

Turkey’s 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

Source: Central Banks, CBT

9.3

3.52.8

9.4

6.0

11.0

8.0

0

5

10

Bra

zil

Chi

na

Tur

key

(FX

)

Tur

key

(TR

Y)

Per

u

Indo

nesi

a

Indi

a

Pol

and

Rus

sia

Source: Central Banks, CBT

The New Policy Mix

A lower policy rate, a wider interest rate corridor and higher

reserve requirements

• The framework we adopt in spirit is not significantly different from the

conventional inflation targeting framework.

• The only difference is that, previously our policy instrument was the one

19

• The only difference is that, previously our policy instrument was the one

week repo rate, but now our instrument is a “policy mix”

• We seek to use these instruments in the right combination in order to cope

with both inflation and macro-financial risks.

• The monetary policy stance in this framework is not only determined by the

path of policy rates, but as a combination of all the policy instruments.


20


Liquidity

Central Bank Liquidity(billion TRY)

20

30

Weekly Repo Funding 3-month Repo Funding

Sterilization through ON Borrowing Net Liquidity Provided

21

Source: ISE, CBRT

-20

-10

0

10

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

7

8

9

10

11

Volatility in Overnight Rates

CBT Lending Rate

Policy Rate

Overnight Interest Rates(percent)

Volatility in Overnight Interest Rates(2-week standard deviation)

1.2

1.4

1.6

1.8

1

2

3

4

5

6

7

08-10 09-10 10-10 11-10 12-10 01-11 02-11

22

Source: ISE, CBRT

CBT Borrowing Rate

Overnight Interest Rate

Source: ISE, CBRT

0.0

0.2

0.4

0.6

0.8

1.0

09-10 10-10 11-10 12-10 01-11 02-11

Yield Curve and Inflation Expectations

Yield Curve*(percent)

Inflation Expectations*(percent)

8.5

9.0

9.5

Feb 2, 2011

8

9

10

12-month forward

23

* Calculated from the compounded returns on bonds quoted in ISE Bills and Bonds Market by using ENS method.Source: ISE, CBRT

6.5

7.0

7.5

8.0

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Oct. 1, 2010

4

5

6

7

12-07 06-08 12-08 06-09 12-09 06-10 12-10

24-month forward

* CBRT Expectations Survey results from the second survey period.Source: ISE, CBRT

1.05

1.10

1.15

TRY and Other EM Currencies against USD*(4 Jan 2010=1)

TRY

Initial Impact on Currency

0.90

0.95

1.00

01-10 03-10 05-10 07-10 09-10 11-10 01-11

*Average of emerging market currencies, including Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South Korea and Colombia.Source: Bloomberg, CBRT

EM Average

24

40

60

80

Household Loans

Household Loans(year-on-year change, percent)

Housing Loans

Other Consumer Loans

-40

-20

0

20

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

25

Source: CBRT

Auto Loans

Measures by Other Authorities

1. Fiscal discipline

2. No FX loans to households

3. Domestic currency bond market

4. Loan/value restrictions

26

5. Tax hikes on certain consumer loans

6. Restrictions on credit card borrowing

Outlook for Inflation and Economic Activity

Inflation and Output Gap Forecasts

10

12

Forecast Range* Uncertainty Band Year-End Inflation Targets Output Gap

Control Horizon

The Baseline Scenario envisages a gradual tightening by changing the mix of the policy

rate and reserve requirement ratios. Such a tightening should not only aim at slowing

down credit growth and domestic demand, but also reduce macroprudential concerns.

27

-10

-8

-6

-4

-2

0

2

4

6

8

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Per

cent

Source: CBRT

Overall Assessment

� Low interest rates across the globe, soaring imports driven by

strong credit growth amid increased short-term capital inflows, and

weaker foreign demand caused the current account deficit to widen

rapidly in 2010.

� The new monetary policy strategy envisions the use of multiple

28

instruments to manage both internal and external balances.

� Given the economic situation, the combination of lower policy rates

and higher reserve requirement ratios is the most appropriate

policy mix in terms of jointly upholding financial stability and price

stability.

CENTRAL BANK OF THE REPUBLIC OF TURKEY


29

February, 2011

Durmu ş YILMAZ

Governor


central bank of the republic of turkey€¦ · central bank of the republic of turkey growth and...

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