CENTRAL BANK OF THE
REPUBLIC OF TURKEY
Hüseyin Zafer
Executive Director
May 2011
1
Contents
I. General Outlook in the Turkish Economy
II. Post-Crisis Challenges
III.New Policy Mix as the Response
IV.Outcomes of the New Policy
2
I. General Outlook in the Turkish Economy
3
Strong Rebound in Economic Activity in 2010
GDP Growth
(%)
10
8
6
8,9
4
2
6,8
3,0
4,5
5,0
5,5
0,7
0
-2
-4,8
-4
-6
07
01
0
0
2
2
02
93
0
9
2
1
08
20
09
20
10
20
p
11
0
2
p
12
0
2
p
13
0
2
Source: TURKSTAT, SPO
4
Unemployment is Still High but Recovering
Non-Agricultural Employment and
GDP Growth
Unemployment ratio
(%, Seasonally Adjusted)
15
14,8
14
10,0
1200
8,0
1000
6,0
800
13
4,0
600
12
2,0
400
0,0
11
10,6
200
-2,0
GDP Grow th (%)
-4,0
Change in Non-agricultural
Employment (000 person,
rhs)
10
9
01.05
05.05
09.05
01.06
05.06
09.06
01.07
05.07
09.07
01.08
05.08
09.08
01.09
05.09
09.09
01.10
05.10
09.10
01.11
-6,0
2005
2006
2007
2008
0
-200
2009
2010
Source: TURKSTAT
Last observations: January 2011
5
Disinflation Continues
Inflation Realizations
(%, red dots are the year-end inflation targets)
80
70
60
50
40
30
20
10
5,5
5
5
2011
2012
2013
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: TURKSTAT
6
And so Does the Historically-Low Lending Rates..
Lending Rates
(%, weighted averages for the categories)
80
70
Personal Finance
60
Vehicle
Housing
50
Commercial
CBT Policy Rate
40
30
20
10
01-11
07-10
01-10
07-09
01-09
07-08
01-08
07-07
01-07
07-06
01-06
07-05
01-05
07-04
01-04
07-03
01-03
07-02
01-02
0
Source: CBRT
7
Highest Decline in CDS Spreads Despite Highest Interest
Rate Cut
1600
CDS Premia of Selected Countries
CDS Premia of Selected Countries
(January 1, 2008=0, April 22, 2011)
(January 1, 2008 - April 22, 2011)
1200
CDS (bps)
1400
Turkey
1000
Greece
Portugal
Turkey
Spain
Ireland
Italy
Belgium
1200
1000
800
600
Czech R.
Poland
Hungary
800
Bulgaria
Romania
600
400
Russia
400
200
200
0
Turkey
-200
Source: CBRT
02.11
10.10
06.10
01.10
09.09
05.09
01.09
09.08
05.08
01.08
02.11
10.10
06.10
01.10
09.09
05.09
01.09
09.08
05.08
01.08
0
8
II. Post-Crisis Challenges
9
Background
Advanced Economies
Low Growth rates
&
Very Low Interest Rates
+
Capital Inflows
to Emerging
Markets
Credit Growth
&
Risk of
Overheating
Emerging Markets
Strong Growth Prospects
&
High Interest Rates
Risk of future
instability!
10
Capital Inflows
Capital Inflows
(USD billion)
FDI
50
Portfolio Investments and Deposits
40
Private Sector Credit*
30
20
10
0
-10
-20
* After controlling for the effect of
change in Decree No. 32
01.11
10.10
07.10
04.10
01.10
10.09
07.09
04.09
01.09
10.08
07.08
04.08
01.08
-30
Source: TURKSTAT, CBT
11
… Supporting the Strong Growth in Credits
Loan Growth
(%, year-on-year change)
60
50
40
30
20
10
0
-10
SME
Total
Individual
Corporate/Commercial
02.11
12.10
10.10
08.10
06.10
04.10
02.10
12.09
10.09
08.09
06.09
04.09
02.09
12.08
10.08
08.08
06.08
04.08
02.08
-20
Source: BRSA
Last observation: February 2011
12
… which is Higher than the EU Countries
Change in Bank Credit
(%, year-on-year, 2010)
40
31.6
33.9
30
20.4
Portugal
Denmark
Belgium
France
Austria
8.4
8.5
Italy
2.5
5.4
U.K
1.0
3.9
0.0
0.7
4.1
Germany
10
Finland
20
-1.7
-0.9
-0.7
Luxembourg
Spain
Netherlands
0
-10
-20
-22.6
Turkey
Greece
Sweden
Ireland
-30
Source: ECB Statistical Data Warehouse
13
3
0
-2
-5
Portugal
Greece
Australia 1
Lithuania
Slovenia
Spain
Italy
Poland
France
Norway
Slovak Republic
Sweden
Latvia
Ireland
Netherlands
Hungary
Romania
Czech Republic
Bulgaria
Switzerland
Turkey (Feb'11)
Russian
Turkey ('10)
Estonia
Latvia
Romania
Greece
Hungary
Netherlands
Slovenia
France
Italy
Estonia
Sweden
Switzerland
Portugal
Slovak Republic
Spain
Russia
Poland
Norway
Bulgaria
Lithuania
Czech
Turkey (Feb'11)
Turkey (2010)
Outstanding Outlook in the Banking Sector
Return on Assets
Capital Adequacy Ratio
(%)
(%)
25
2
1
20
15
-1
10
-3
5
-4
0
Source: IMF
Latest Data Available varies btw 2009-2010
14
16
8
14
7
12
10
8
6
0
02.08
04.08
06.08
08.08
10.08
12.08
02.09
04.09
06.09
08.09
10.09
12.09
02.10
04.10
06.10
08.10
10.10
12.10
02.11
Switzerland
Norway
Australia 1
Netherlands
Turkey (Feb'11)
Portugal
Turkey (10)
Poland
France
Spain
Slovak Republic
Estonia
Czech Republic
Slovenia
Lithuania
Bulgaria
Greece
Hungary
Russian Federation2
Italy
Romania
Ireland
Latvia
…with Comparatively Very Low NPL Ratios
NPL Ratios of Selected Countries
NPL Ratios in Turkey
(%)
(%)
SME
Corporate
6
Total
Individual
5
4
4
2
3
2
Source: IMF, BRSA
Latest Data Available varies btw 2009-2010
15
Strong Balance Sheet of Households
Household Liabilities to GDP Ratios
Household FX Positions
(%)
Turkey
Romania
Slovakia
Slovenia
Czech Rep
Bulgaria
Belgium
Hungary
Litvania
Italy
Poland
Greece
Latvia
Austria
France
Estonia
Finland
EU27
Germany
The Netherlands
UK
Sweden
Luxembourg
Portugal
Spain
Ireland
Denmark
15.4
2009
Sep. 2010
Households FX Assets*
67,597
69,338
Households FX
Liabilities*
2,172
1,572
FX Position*
65,425
67,766
GDP*
616,753
734,723
FX Position/GDP (%)
+10.6
+9.2
* (USD million)
0
20
40
60
80
100
120
140
160
Source: Eurostat, CBRT
Last observations:Sep. 2010
16
…and Non-Financial Sector
Non Financial Companies (NFC) FX
Positions
Bank Loans to Non Financial Companies
(% of GDP)
Poland
Romania
Czech Republic
Slovakia
Turkey
Hungary
Finland
Belgium
Lithuania
Germany
United Kingdom
Greece
France
Bulgaria
EU27
Estonia
Latvia
Italy
Austria
Sweden
Netherlands
Slovenia
Denmark
Portugal
Spain
Malta
Ireland
Cyprus
Luxembourg
September
2010
28
NFC FX Assets*
83,860
NFC FX Liabilities*
173,128
FX Position*
-89,268
FX Position/GDP (%)**
-12.7
•(USD million).
** Note that the short FX position for short term
liabilities are less than 1% of GDP (USD 458 mio).
Banking Sector FX position is balanced.
0
20
40
60
80
100
120
140
160
180
Source: Eurostat, CBRT
Last observations:Sep.2010
17
… and of Public Sector
Budget Deficit Forecast for 2011
Public Debt Forecast for 2011
(% of GDP)
(% of GDP)
Hungary
Sweden
Estonia
Luxembourg
Finland
Germany
Bulgaria
Turkey*
Malta
Austria
Denmark
Czech Rep.
Netherlands
Belgium
Italy
Romania
Cyprus
Slovenia
Slovak Rep.
Latvia
Portugal
Poland
France
Lithuania
Spain
Greece
UK
Ireland
-11
Estonia
Luxembourg
Bulgaria
Maastricht
Criterium
Maastricht
Criterium
Austria
Sweden
Romania
Turkey*
-2.8
40.6
Czech Republic
Slovenia
Latvia
Lithuania
Slovak Republic
Denmark
Finland
Poland
Cyprus
Spain
Netherlands
Malta
Hungary
Germany
UK
France
Portugal
Belgium
Ireland
Italy
Greece
-9
-7
-5
-3
-1
1
3
*: Turkey’s budget deficit figure is MTP (2011-2013 projection) for central govenment. IMF
WEO April 2011 budget deficit forecast for Turkey is 1.7% and better than what was envisaged
in Turkey’s MTP as 2.1% for general government.
0
20
40
60
80
100
120
140
160
*: Turkey’s debt figure is MTP (2011-2013) projection. IMF WEO April 2011 public debt
forecast for Turkey is 39.4%.
Source: MoF, Treasury, MTP (2011-2013)
Targets, IMF WEO April 2011
18
Stronger Import Demand Partly Fuelled by Credit Growth...
The quantity indices depict the stronger import demand growth compared to export growth.
Higher growth in import demand resulted in increasing foreign trade deficit.
Export, Import & Foreign Trade Balance
(12-month MA, USD Billion)
Export and Import Quantity Indices
(3-month MA)
200
Export Quantity Index
190
Import Quantity Index
180
20
Export
18
Import
14
160
12
150
10
140
8
130
6
120
4
110
-6
Net Export (rhs)
16
170
-7
-5
-4
-3
-2
-1
2
Source: TURKSTAT
Oca.11
Eyl.10
May.10
Oca.10
Eyl.09
May.09
Oca.09
Eyl.08
May.08
Oca.08
Eyl.07
May.07
Oca.07
Eyl.06
May.06
Oca.06
Eyl.05
0
May.05
0
Oca.05
Oca.11
Eyl.10
May.10
Oca.10
Eyl.09
May.09
Oca.09
Eyl.08
May.08
Oca.08
Eyl.07
May.07
Oca.07
Eyl.06
May.06
Oca.06
Eyl.05
May.05
Oca.05
100
19
... Leading to a Deterioration in the Current Account…
Current Account Balance/GDP
(%)
8,0
Ratio to
GDP
6,0
CAB / GDP
4,0
2007
2008
2009
201
0
2011*
CAB
-5.3
-6.8
-2.2
-6.6
-7.7
CAB Excl.
Energy
-1.3
-0.2
1.9
-2.0
-2.6
CAB (excl. Energy)/ GDP
2,0
0,0
* As of February 2011, last 12
months.
-2,0
-4,0
-6,0
-8,0
0110
0109
0108
0107
0106
0105
0104
0103
0102
0101
0100
-10,0
Source: TURKSTAT, CBRT
20
…Although “Current Account Imbalances” is a Global Issue.
30
Current Account Balance in Some Countries
25
(2010 IMF Forecasts, ratio to GDP, percent)
20
15
10
5
0
-5
Source. IMF, CBRT
Greece
Turkey (2011)
Turkey (2010)
Spain
Italy
Poland
United States
India
India
United Kingdom
Brazil
France
Indonesia
Korea
Japan
Thailand
China
Saudi Arabia
Taiwan
Malaysia
-15
Czech Rep.
-10
21
III. New Policy Mix as the Response
22
The Three Phases of the Monetary Policy since the Collapse
of Lehman Brothers
• Phase-1: Full liquidity support (after the collapse of Lehman
Brothers, September 2008)
• Phase-2: Exit Strategy (April 2010)
• Phase-3: New Policy Mix (since November 2010)
-
A lower policy rate,
-
Wider interest rate corridor and
-
Higher reserve requirements
23
RRR and the Policy Rate being the Main Monetary Tools
Tools in the order of priority
For Financial Stability:
For Price Stability:
1.
2.
3.
1.
2.
3.
Required Reserve Ratios
TRY Liquidity Management
Short-Term Interest Rates
Short-Term Interest Rates
TRY Liquidity Management
Required Reserve Ratios
24
The New Policy Framework of Two Targets and Two
Instruments
25
Lower Policy Rate and Wider Corridor
Policy Rate and Interest Rate Corridor
(%)
25
20
Interest Rate Corridor
15
10
5
Policy Rate
0
01.08 04.08 07.08 10.08 01.09 04.09 07.09 10.09 01.10 04.10 07.10 10.10 01.11 04.11
26
Higher Reserve Requirements
Reserve Requirements Balances
(%)
18
Longer Than 1 Year
16
6-12 Months
14
3-6 Months
1-3 Months
12
Up to 1 Month
10
Demand Deposit
8
6
4
2
0
Nov 2010
Step 1 (Dec 2010)
Step 2 (Jan 2011)
Step 3 (Apr 2011)
Step 4 (Apr 2011)
Source: CBRT
27
Reserve Requirements – An International Comparison
Current Reserve Requirement Ratios
(%)
25
20.5
20
20
15
13.5
11.8
10.0
10
8
6
4
5
3.5
Poland
Russia
India
Indonesia
Peru
Turkey (FX)
Turkey (TRY)
Brazil
China
0
Source: Central Banks, CBRT
28
Measures Taken by other Turkish Authorities.
1. Fiscal discipline
2. No FX loans to households
3. Domestic currency bond market
4. Loan/value restrictions
5. Tax hikes on certain consumer loans
6. Restrictions on credit card borrowing
29
IV. Outcomes of the New Policy
30
1. Tightening Liquidity
Reserve Requirements Balances
(billion TRY)
70
The new reserve requirements will be effective as of Apr 29, 2011
(approx. 1.5 billion TRY and 1.4 billion USD)
60
50
40
TRY Required
Reserves
30
20
10
FX Required
Reserves
03.11
01.11
11.10
09.10
07.10
05.10
03.10
01.10
11.09
09.09
07.09
05.09
03.09
01.09
0
Source: CBRT
31
2. Desired Level of Volatility in Money Markets
Overnight Interest Rates
(%)
Swap Rates
(%)
Source: CBRT
32
3. Impact on Currency
TRY and Other EM Currencies
Against USD ( 4 Jan 2010= 1)
33
4. Steeper Yield Curve and Inflation Expectations under
Control
Yield Curve*
Inflation Expectations
(%)
(%.)
*Calculated from the compunded returns on
bonds quoted in ISE by using ENS method.
Source: CBRT
34
CENTRAL BANK OF THE
REPUBLIC OF TURKEY
Hüseyin Zafer
Executive Director
May 2011
35
Reserve Slides
Monetary Policy Outlook
36
Baseline Scenario – Inflation Report (April 28, 2011)
 The net impact is on the tightening side.
 20-25% annual credit growth is targeted at the end of 2011
 Risks both on the downside and on the upside
37
Inflation and Output Gap Forecasts
Output Gap Forecast
Inflation Forecasts
(%)
(%)
9
0
8
-1
7
6
6.9
-2
6.4
6.5
5.2
-3
5
5.5
5
5
5
-4
4
-5
3
Inflation Forecasts
Inflation Targets
Uncertainty Band
-6
2
Source: CBRT, April 2011 Inflation Report
12.13
09.13
06.13
03.13
12.12
09.12
06.12
03.12
12.11
09.11
06.11
03.11
12.10
-7
09.10
2013
06.10
2012
03.10
2011
12.09
2010
38
Risk Scenarios
Scenario 1
• In case global economic problems intensify and contribute to stronger capital flows, a
policy mix of low policy rate, high RRR and wider interest rate corridor may be
implemented for a long period. If this scenario leads to weaker domestic demand, it may
require an easing in all instruments.
Scenario 2
• If the global economy faces a faster-than-expected recovery, global inflation may
increase and thus trigger a tightening in the monetary policies of developed economies.
• Materialization of such a scenario would mean higher global interest rates and demanddriven domestic inflation, and thus necessitate a tightening by using both policy rates
and reserve requirements.
Scenario 3
• The increases in commodity prices, if they persist, exert risks regarding general pricing
behavior, given the strong pace of domestic demand.
• Should such a risk materialize and hamper the attainment of the medium-term inflation
targets, there may be stronger tightening than envisaged in the baseline scenario.
• Higher commodity prices may worsen the current account balance.
• Therefore, the policy mix may vary depending on the developments regarding external
demand, capital flows, and the outlook for credit growth.
39