para politikasi

The World Bank-IMF Annual Meetings

Erdem Başçı

Governor

April 2012

Contents

I. The New Policy Framework

II. Rebalancing

III. Growth

IV. Inflation

2

THE NEW POLICY FRAMEWORK

3

A Different Sort of Problem

4

EU: Deleveraging

Turkey: Excessive Credit Growth

Against Excessive Credit Growth

5

Predominant Policy

Before August 2011 Macroprudential Tightening

After October 2011 Monetary Tightening

Policies: Post-Lehman

6

II

III IV

𝐘 (potential output)

𝛑* (target inflation)

Inflation

Output

Shock Outcome of monetary, financial & fiscal policies

Policies: Global Monetary Expansion

7

III IV

𝐘 (potential output)

𝛑* (target inflation)

Inflation

Output

I

Shock Outcome of monetary, financial & fiscal policies

Policies: Eurozone Crisis

8

III

𝐘 (potential output)

𝛑* (target inflation)

Inflation

Output

I II

Shock Expected outcome of monetary, financial & fiscal policies

2011Q4 – Present

Multiple Instruments, Multiple Objectives

9

Credit Policy

Reserve Requirements

Macro- prudential

Tools

Weekly Repo

Interest Rate

Policy

Liquidity Policy

Interest Rate Corridor

Funding Strategy

KEY INDICATORS

Financial Stability

Price Stability

OBJECTIVES INSTRUMENTS

Expectations

Credit Growth

Exchange Rate

0

2

4

6

8

10

12

14

CBRT Policy Rates (Percent)

The Average Cost of CBRT Funding (Percent)

Source: CBRT. Latest Observation: April 20 , 2012. Source: CBRT. Latest Observation: April 20, 2012

Liquidity Policy

0

2

4

6

8

10

12

14O/N Lending - Borrowing Interest Rate Corridor

ISE O/N Repo Rates

10

11

Source: CBRT.

Reserve Requirements

Credit Policy

Latest Observation: April 05, 2012

0

2

4

6

8

10

12

14

16

18The range of RRR Weighted average RRR

REBALANCING

12

13

Real Exports and Imports (2003=100, Seasonally Adjusted)

Rebalancing

Source: TURKSTAT, CBRT.

100

120

140

160

180

200

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

2005 2006 2007 2008 2009 2010 2011

Exports

Imports

14

Rebalancing

*2012Q1 is forecast.

Final Domestic Demand and Exports (2008Q1=100)

Source: CBRT.

70

75

80

85

90

95

100

105

110

115

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*

2005 2006 2007 2008 2009 2010 2011 2012

Exports Final Domestic Demand

15

Source: CBRT.

0

10

20

30

40

50

60

2012 2007-2011 average 2011

Total Loan Growth Rates (13 Weeks Moving Average, Annualized, FX Adjusted, Percent)

Credit Growth

Latest Observations: March 18, 2012

Exchange Rate

16

01.11.2010 – 22.08.2011 23.08.2011 – 11.04.2012

-25

-20

-15

-10

-5

0

5

10

15

20

25

-2

0

2

4

6

8

10

12

14

16

18

Source: Bloomberg, CBRT.

Note: Positive change means depreciation against US dollar.

17

CPI Based REER* (Base year: 2003)

Real Exchange Rates

*Reel effective exchange rate, Natural logarithms.

Source: CBRT.

4.4

4.45

4.5

4.55

4.6

4.65

4.7

4.75

4.8

4.85

4.9

4.95

CPI Based REER

Trend

QE2 Policy Reaction

4.4

4.45

4.5

4.55

4.6

4.65

4.7

4.75

4.8

4.85

4.9

4.95

CPI Based (Developed Economies)REER

Trend

18

Source: CBRT.

CPI Based (Developed Economies) REER* (Base year: 2003)

Real Exchange Rates

*Natural logarithms.

QE2 Policy Reaction

19

CPI Based (Developing Economies) REER* (Base year: 2003)

Real Exchange Rates

*Natural logarithms.

Source: CBRT.

4.4

4.45

4.5

4.55

4.6

4.65

4.7

4.75

4.8

4.85

4.9

4.95

CPI Based (Developing Economies) REER

Mean

QE2 Policy Reaction

20

Source: Bloomberg, CBRT.

Volatility in Emerging Market Currencies (Percent, Implied for the next 12 months)

Exchange Rate Volatility

*Emerging market currencies include Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, South Africa, Indonesia, South Korea and Colombia.

Latest Observations: April 16,2012

5

10

15

20

25

30

Emerging Economies

Turkey

21

Source: CBRT.

*Short-term capital movements are sum of banking and real sectors' short term net credit and deposits in banks.

**Long-term capital movements are sum of banking and real sectors’ long term net credit and bonds issued by banks and the Treasury.

Main Sources of Current Account Deficit Finance (12-months Cumulative, Billion USD)

Quality of Capital Inflows

-20

-10

0

10

20

30

40

50

60

70

80

Portfolio and Short-Term*

FDI and Long-Term**

Current Account Deficit

GROWTH

22

23

Source: CBRT.

4.4

4.45

4.5

4.55

4.6

4.65

4.7

4.75

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*

2005 2006 2007 2008 2009 2010 2011 2012

Actual GDP (Base Quarter: 2008Q1, Seasonally Adjusted, Natural Logarithms)

Gross Domestic Product

*2012Q1 is forecast.

24

Source: MARKIT, TURKSTAT.

Latest Observations: March 2012 for PMI, February 2012 for IP.

Industrial Production and PMI in Turkey (2005=100, Seasonally Adjusted, Monthly)

Soft Landing

127,53

49.6

30

35

40

45

50

55

60

90

95

100

105

110

115

120

125

130

135

IP PMI (right axis)

Capital and Labor

25

Fixed Capital Formation* (Percent, Ratio to GDP with current prices)

Labor Market Participation Rate* (Percent, Seasonally Adjusted)

45

46

47

48

49

50

51

Source: TURKSTAT, CBRT.

*Annualized. Source: TURKSTAT, CBRT.

12

14

16

18

20

22

24

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 2 3 4 1 2 3 4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

26

Source: WEO, Turkstat, CBRT.

*Difference of natural logarithms.

-5

-4

-3

-2

-1

0

1

2

3

4

5

-5

-4

-3

-2

-1

0

1

2

3

4

5

Annual Average Employment Growth* (2007-2010)

Employment

27

Source: CBRT

Prospects and Employment (Percent, 3 month moving averages)

Employment

59

64

69

74

79

84

89

94

99

81

82

83

84

85

86

87

88

89

Non-agricultural Employment / Labor Force

Employment Prospects (right axis)

INFLATION

28

Source: CBRT and Bloomberg.

Emerging Market Economies: China, Brazil, India, Mexico , Russia, Turkey, Poland, Indonesia, S. Africa, Argentina, Thailand, Malaysia, Czech Rep., Colombia, Hungary, Romania, Ukraine, Vietnam, Chili, Peru, Egypt, Morocco, Lebanon and S. Arabia.

*2012 and 2013 end year values are from Consensus Forecast.

29

Inflation in Turkey vs. Emerging Markets (Percent, Weighted Average)

Inflation

0

5

10

15

20

25

30

Turkey

Emerging Markets

30

Inflation Expectations

Medium Term Inflation Expectations

Source: CBRT.

* CBRT Survey of Expectations.

2

3

4

5

6

7

8

9

10

12 month 24 month Target Inflation

31

Source: CBRT.

* Shaded region indicates the 70 percent confidence interval for the forecast.

-4

-2

0

2

4

6

8

10

12

Per

cen

t

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

Control Horizon

Inflation Forecasts and Realizations

Summary

• Rebalancing between the domestic and external demand continues as envisaged.

• The highest level in current account deficit was seen in October 2011. The improvement will continue in the coming months.

• Growth will remain moderate throughout 2012.

• Inflation will peak in this month and it will fall significantly in May. The fall will resume and accelerate in the last months of the year.

• The Central Bank strictly prefers revising its policy stance to revising its inflation forecast.

• All policy actions will remain geared to attain the 5% inflation target by mid-2013.

32

The World Bank-IMF Annual Meetings

Erdem Başçı

Governor

April 2012