Turalay Kenc Deputy Governor May 2011€¦ · 1206 0307 0607 0907 1207 0308 0608 0908 1208 0309...

Turalay KencDeputy Governor

May 2011

Monetary Policy and Financial Stability

A monetary policy challenge: Existence of the financial stability problem…

Source: CBRTLast observations: April 2011 for Credit,

Credit Growth and Current Account Deficit (%)

0

1

2

3

4

5

6

7

8

9

1203

0504

1004

0305

0805

0106

0606

1106

0407

0907

0208

0708

1208

0509

1009

0310

0810

0111

0

2

4

6

8

10

12

14CAD/GDP* Change in Credit Stock/GDP (rhs)**

Worsening CAD financing…

Source: CBRTLast observations: March, 2011 for BoP, April 2011 for Credit,

Finance of Current Account Deficit, USD billion,12-month rolling sum

-20

-10

0

10

20

30

40

50

60

70

1206

0307

0607

0907

1207

0308

0608

0908

1208

0309

0609

0909

1209

0310

0610

0910

1210

FDI and Long term creditPortfolio Inflows and Short-term creditsCAD

despite disinflation continues

Inflation Realizations(%, red dots are the year-end inflation targets)

Source: CBRTLast observations: May, 2011

Inflation Expectations(%.)

4

5

6

7

8

9

10

12-0

7

06-0

8

12-0

8

06-0

9

12-0

9

06-1

0

12-1

0

12- month forward

24 - month forward

5,5 5 50

10

20

30

40

50

60

70

80

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Non-core liabilities:A source of funding for excessive credit?

Source: CBRTLast observations: March, 2011

Non-Core Liabilities/M2(%)

0

5

10

15

20

25

30

35

12.0

2

04.0

3

08.0

3

12.0

3

04.0

4

08.0

4

12.0

4

04.0

5

08.0

5

12.0

5

04.0

6

08.0

6

12.0

6

04.0

7

08.0

7

12.0

7

04.0

8

08.0

8

12.0

8

04.0

9

08.0

9

12.0

9

04.1

0

08.1

0

12.1

0

NCL/M2Liabilities to other banks (FX)/M2Liabilities to other banks (total)/M2Repos/M2

Financial disruptions could do serious harm to

economy

But also they endanger price stability

Monetary and financial policies are intrinsically

linked

Central banks need to coordinate monetary and

financial policy

No Dichotomy Between Monetary and Financial Policy

I. Financial Stability Problem

II. Non-Core Liabilities

III.New Policy Mix

IV.Outcomes of the New Policy

V.Discussion on Monetary and Macroprudential

Policies

Contents

I. Financial Stability Problem

Excessive credit growth

Total Credits Extended to Private Sector / GDP (2008Q3=100)

r

Source: TURKSTAT, CBRT,Last Observation: March, 2011

GDP Growth and its Contributors (%)

7.0

0.9

-7.0

-14.7

-7.8

-2.8

5.99.2

2.6

10.312.05.2

-25

-20

-15

-10

-5

0

5

10

15

20

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

Net ExportStock Chs.Private Inv.Private Cons.GDP Growth

8.5 7.7 7.69.8

5.9

9.7

6.3 5.78.1

3.8 3.2 4.27.0

2.60.9

-7.0

-14.7

-7.8

-2.8

5.9

12.010.3

5.2

9.2

-25

-20

-15

-10

-5

0

5

10

15

20

2005Q

1

2005Q

3

2006Q

1

2006Q

3

2007Q

1

2007Q

3

2008Q

1

2008Q

3

2009Q

1

2009Q

3

2010Q

1

2010Q

3

GDP Growth (%)

Recovery in economic activity is more pronounced...

Source: TURKSTAT, CBRT,Last Observation: April 2011

New Orders and Invetment Expectations(Seasonally Adjusted,)

...and surveys point to an ongoing growth

-60

-40

-20

0

20

40

60

01.0

7

04.0

7

07.0

7

10.0

7

01.0

8

04.0

8

07.0

8

10.0

8

01.0

9

04.0

9

07.0

9

10.0

9

01.1

0

04.1

0

07.1

0

10.1

0

01.1

1

04.1

1

Total Orders (Next 3 Months)

Export Orders (Next 3 Months)

Fixed Investment Expenditures (Next 12 Months)

Hourly Labor Force Cost (Seasonally Adjusted, 2008=100)

Unemployment Rates(Seasonally Adjusted, percentages)

Source: TURKSTAT, CBRT*As of January, **Deflated by CPI

0

2

4

6

8

10

12

14

16

18

20

2007

Q1

Q2

Q3

Q4

2008

Q1

Q2

Q3

Q4

2009

Q1

Q2

Q3

Q4

2010

Q1

Q2

Q3

Q4

2011

Q1*

43

44

45

46

47

48

49

50Labor Force Participation Rate (rhs)Non-Farm Unemployment RateUnemployment Rate

80

85

90

95

100

105

110

115

120

125

2007

Q1

Q2

Q3

Q4

2008

Q1

Q2

Q3

Q4

2009

Q1

Q2

Q3

Q4

2010

Q1

Q2

Q3

Q4

0

2

4

6

8

10

12

14

16Labor Force Cost (Annual Percentage Change, rhs)Labor Force CostReal Labor Force Cost**

Employment is recovering and labor cost is stable….

Source: CBRT, Last Observation: April 2011

Non-Farm Value Added and Employment(Seasonally Adjusted,)

… while labor productivity continues to rise

17

18

19

20

21

22

23

24

25

2005

Q1

Q2

Q3

Q4

2006

Q1

Q2

Q3

Q4

2007

Q1

Q2

Q3

Q4

2008

Q1

Q2

Q3

Q4

2009

Q1

Q2

Q3

Q4

2010

Q1

Q2

Q3

Q4

2011

Q1*

1998 Prices Billion TL

14

14.5

15

15.5

16

16.5

17

17.5Million

Value Added

Employment (rhs)

Source: IMFLatest Data Available varies btw 2009-2010

Return on Assets(%)

-5

-4

-3

-2

-1

0

1

2

3

Latv

iaR

oman

iaG

reec

eH

unga

ryN

ethe

rland

sS

love

nia

Fran

ceIta

lyE

ston

iaS

wed

enS

witz

erla

ndP

ortu

gal

Slo

vak

Rep

ublic

Spa

inR

ussi

aP

olan

dN

orw

ayB

ulga

riaLi

thua

nia

Cze

ch

Turk

ey (F

eb'1

1)Tu

rkey

(201

0)

0

5

10

15

20

25

Por

tuga

lG

reec

eA

ustra

lia 1

Lith

uani

aS

love

nia

Spa

inIta

lyP

olan

dFr

ance

Nor

way

Slo

vak

Rep

ublic

Sw

eden

Latv

iaIre

land

Net

herla

nds

Hun

gary

Rom

ania

Cze

ch R

epub

licB

ulga

riaS

witz

erla

ndTu

rkey

(Feb

'11)

Rus

sian

Turk

ey ('

10)

Est

onia

Capital Adequacy Ratio(%)

Outstanding outlook in the banking sector…

Source: IMF, BRSALatest Data Available varies btw 2009-2010

NPL Ratios of Selected Countries(%)

NPL Ratios in Turkey(%)

0

2

4

6

8

10

12

14

16

Sw

itzer

land

Nor

way

Aus

tralia

1N

ethe

rland

sTu

rkey

(Feb

'11)

Por

tuga

lTu

rkey

(10)

Pol

and

Fran

ceS

pain

Slo

vak

Rep

ublic

Est

onia

Cze

ch R

epub

licS

love

nia

Lith

uani

aB

ulga

riaG

reec

eH

unga

ryR

ussi

an F

eder

atio

n2Ita

lyR

oman

iaIre

land

Latv

ia

2

3

4

5

6

7

8

02.0

804

.08

06.0

808

.08

10.0

812

.08

02.0

904

.09

06.0

908

.09

10.0

912

.09

02.1

004

.10

06.1

008

.10

10.1

012

.10

02.1

1

SME

Corporate

Total

Individual

…with comparatively very low NPL ratios,

Source: Eurostat, CBRTLast observations:Sep. 2010

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

15.4

0 20 40 60 80 100 120 140 160

DenmarkIrelandSpain

PortugalLuxembourg

SwedenUK

The NetherlandsGermany

EU27FinlandEstoniaFranceAustriaLatvia

GreecePoland

ItalyLitvania

HungaryBelgiumBulgaria

Czech RepSloveniaSlovakiaRomania

Turkey

Household Liabilities to GDP Ratios(%)

Household FX Positions

* (USD million)

Healthy household’s balance sheets…

28

0 20 40 60 80 100 120 140 160 180

LuxembourgCyprusIrelandMaltaSpain

PortugalDenmarkSlovenia

NetherlandsSwedenAustria

ItalyLatvia

EstoniaEU27

BulgariaFranceGreece

United KingdomGermanyLithuaniaBelgiumFinland

HungaryTurkey

SlovakiaCzech Republic

RomaniaPoland

Bank Loans to Non Financial Companies (% of GDP)

December2010

NFC FX Assets* 86.7

NFC FX Liabilities* 181

FX Position* -94.3

FX Position/GDP (%)** -12.8

•(USD million).

** Note that the short FX position for short term liabilities are less than 1% of GDP (USD 313 mio). Non-Banking Sector FX position is balanced.

Non Financial Companies (NFC) FX Positions

Source: Eurostat, CBRTLast observations: December, 2010

… with very low non-financial sector’s short-term FX positions,

Source: MoF, Treasury, MTP (2011-2013) Targets, IMF WEO April 2011

…and sound public balances all support financial stability.

Public Debt Forecast for 2011(% of GDP)

Budget Deficit Forecast for 2011(% of GDP)

-2.8

-11 -9 -7 -5 -3 -1 1 3

IrelandUK

GreeceSpain

LithuaniaFrancePoland

PortugalLatvia

Slovak Rep.SloveniaCyprus

RomaniaItaly

BelgiumNetherlandsCzech Rep.

DenmarkAustria

MaltaTurkey*

BulgariaGermany

FinlandLuxembourg

EstoniaSweden

Hungary

Maastricht Criterium

40.6

0 20 40 60 80 100 120 140 160

GreeceItaly

IrelandBelgiumPortugal

FranceUK

GermanyHungary

MaltaNetherlands

SpainCyprusPolandFinland

DenmarkSlovak Republic

LithuaniaLatvia

SloveniaCzech Republic

Turkey*RomaniaSwedenAustria

BulgariaLuxembourg

Estonia

Maastricht Criterium

*: 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.

*: Turkey’s debt figure is MTP (2011-2013) projection. IMF WEO April 2011 public debt forecast for Turkey is 39.4%.

Source: CBRTLast Observation: May 06

CDS Premia of Selected Countries(January 1, 2008 - May 06, 2011)

CDS Premia of Selected Countries(January 1, 2008=0, May 06, 2011)

Turkey-200

0

200

400

600

800

1000

1200

1400

1600

01.0

8

05.0

8

09.0

8

01.0

9

05.0

9

09.0

9

01.1

0

06.1

0

10.1

0

02.1

1

GreecePortugalTurkeySpainIrelandItalyBelgium

CDS (bps)

0

200

400

600

800

1000

1200

01.0

8

05.0

8

09.0

8

01.0

9

05.0

9

09.0

9

01.1

0

06.1

0

10.1

0

02.1

1

Turkey

Czech R.

Poland

Hungary

Bulgaria

Romania

Russia

Risk indicators are low despite the lower credit ratings.

Risks to financial stability are rising.

Emerging Markets

Strong Growth Prospects &High Interest Rates

Capital Inflows to Emerging Markets

Credit Growth&Risk of Overheating

Advanced Economies

Low Growth rates&Very Low Interest Rates

+Risk of future instability!

Global liquidity glut

Source: Federal Reserve, ECBLast observations: May, 2011

FED’s Total Balance Sheet (assets, billion USD)(May, 2011)

ECB’s total Balance Sheet (assets, billion EUR)(May, 2011)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2002-1

2-1

8

2003-0

5-2

1

2003-1

0-2

2

2004-0

3-2

4

2004-0

8-2

5

2005-0

1-2

6

2005-0

6-2

9

2005-1

1-3

0

2006-0

5-0

3

2006-1

0-0

4

2007-0

3-0

7

2007-0

8-0

8

2008-0

1-0

9

2008-0

6-1

1

2008-1

1-1

2

2009-0

4-1

5

2009-0

9-1

6

2010-0

2-1

7

2010-0

7-2

1

2010-1

2-2

2

FED Assets

Sep.08

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2002-1

2-1

8

2003-0

7-0

2

2004-0

1-1

4

2004-0

7-2

8

2005-0

2-0

9

2005-0

8-2

4

2006-0

3-0

8

2006-0

9-2

0

2007-0

4-0

4

2007-1

0-1

7

2008-0

4-3

0

2008-1

1-1

2

2009-0

5-2

7

2009-1

2-0

9

2010-0

6-2

3

2011-0

1-0

5

ECB AssetsSep.08

Global liquidity is leading to capital flows

Source: IIF, 2011e: estimation, f: forecast

Net Capital Flows towards Emerging Markets Economics(thousand USD)

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011f 2012f

Other private creditors

Commercial banks

Portfolio equity investment

Direct equity investment

Private flows

Financing Costs declined significantly in the last decade.

Lending Rates(%, weighted averages for the categories)

Source: CBRTLast Observation: April 2011

0

10

20

30

40

50

60

70

80

01-0

2

07-0

2

01-0

3

07-0

3

01-0

4

07-0

4

01-0

5

07-0

5

01-0

6

07-0

6

01-0

7

07-0

7

01-0

8

07-0

8

01-0

9

07-0

9

01-1

0

07-1

0

01-1

1

Personal Finance

Vehicle

Housing

Commercial

CBT Policy Rate

Source: BRSALast observation: March 2011

Loan Growth(%, year-on-year change)

Strong domestic demand and capital flows is supporting the strong growth in credits…

-10

0

10

20

30

40

50

60

Mar

.08

May

.08

Jul.0

8

Sep.

08

Nov

.08

Jan.

09

Mar

.09

May

.09

Jul.0

9

Sep.

09

Nov

.09

Jan.

10

Mar

.10

May

.10

Jul.1

0

Sep.

10

Nov

.10

Jan.

11

Mar

.11

IndividualSMECorporate/CommercialTotal

Statistical relationship between CAD and credit growth

Source: CBRTLast observations: December, 2010

Credit Growth and Current Account Deficit

y = 1.6815x + 0.3578R2 = 0.7649

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0.0 1.0 2.0 3.0 4.0 5.0

Δ Retail Loans/ GDP (%)

CAD / GDP (%)y = 0.4701x + 1.5802

R2 = 0.7683

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Δ Commercial Loans / GDP (%)

CAD / GDP (%)

II. Non-Core Liabilities

Core Liabilities – e.g. household deposits Reliable Relatively cheaper Move with the aggregate wealth of the

household Non-core liabilities

– e.g. borrowing from other banks Sensitive to market conditions Relatively more expensive Procyclical Short-term nature

Source of funding?

Core and Non-Core Liabilities

Core Liabilities Intermediate Non-core Liabilities

(Households) (Nonfin. Corp.) (Financial Institutions)

Demand Deposits Demand Deposits Demand Deposits

Funds from Repo Transactions

Short Term Payables to Banks

Term Deposits

Medium and Long Term Payables to Banks

Subordinated Debt

Securities issued

Time Deposits

Highly Liquid

Intermediate

IlliquidLong Term Deposits

(>=1 year)

Time Deposits (1 month - 1 year)

Short Term Deposits

(till 3-months)

Short Term Deposits

(till 1-month)

During booms: credit growth > deposit growth

Need for alternative sources of funding!

Excess liquidity: both before and after crises!

• Capital flows to emerging markets.

Shin (2010) • U.S. is a net creditor in the banking sector even though it is a very

large debtor overall. In effect, the U.S. borrows long and lends short

through the banking sector.

Non-core liabilities: an indicator for financial stability?

Non-core liabilities: Procyclicality

Non-core liabilities: US case

• A tax of 15 b.p. on non-core liabilities is proposed by Obama gov’t.• This works as a tool for macro-prudential regulation as well! (Shin, 2010)

Non-core liabilities: US case

Source: Remarks of SHIN, Hyun Song, “Global Liquidity”, IMF, March 2011

Interoffice assets of foreign bank branches in US and Japan

Non-core liabilities: Turkish case

Loan to Deposit Ratio (%) is robust:

30

40

50

60

70

80

90

100

12-0

2

03-0

3

06-0

3

09-0

3

12-0

3

03-0

4

06-0

4

09-0

4

12-0

4

03-0

5

06-0

5

09-0

5

12-0

5

03- 0

6

06-0

6

09-0

6

12-0

6

03-0

7

06-0

7

09-0

7

12-0

7

03-0

8

06-0

8

09-0

8

12-0

8

03-0

9

06-0

9

09-0

9

12-0

9

03-1

0

06-1

0

09-1

0

12-1

0

03-1

1

Source: CBRT


24

25

26

27

28

29

30

31

32

33

34

03-03

06-03

09-03

12-03

03-04

06-04

09-04

12-04

03-05

06-05

09-05

12-05

03-06

06-06

09-06

12-06

03-07

06-07

09-07

12-07

03-08

06-08

09-08

12-08

03-09

06-09

09-09

12-09

03-10

06-10

09-10

12-10

03-11

Non-core Liabilities to M2 ( %, 3 months moving average)

• Similar pattern with the US figure between 2006-2009• Notable upswing in the last year!

• A source of funding for excessive credit?


Source: CBRTLast observations: March, 2011

Non-Core Liabilities (thousand TL)

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

12-0

203

-03

06-0

309

-03

12-0

303

-04

06-0

409

-04

12-0

403

-05

06-0

509

-05

12-0

503

-06

06-0

609

-06

12-0

6

03-0

706

-07

09-0

712

-07

03-0

806

-08

09-0

812

-08

03-0

906

-09

09-0

9

12-0

903

-10

06-1

009

-10

12-1

003

-11

CENTRAL BANK MONEY MARKETS PAYABLES TO BANKS

FUNDS FROM REPO FUNDS SECURITIES ISSUED

SUBORDINATED DEBT


• Strong recovery after the crisis.

Payables to Foreign Banks (TL billion)


Source: CBRTLast observations: May, 2011

Leverage Growth and Asset Growth of Turkish Banks (14 banks listed in ISE)

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

-0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08 0.10

Leverage (log change)

Tota

l Ass

ets

(log

chan

ge)

Unbalanced composition of growth

• strong domestic demand vs. sluggish external demand

Strengthening but shortening capital inflows

Rapid credit expansion and worsening current account

deficit

• raises concerns for financial stability

Need for a different, yet prudent approach in monetary

policy

The policy challenge

III.New Policy Mix

39

Two Targets, Two Instruments

The new policy mix…

New Policy Mix (since November 2010)

1. A lower policy rate

2. Wider interest rate corridor

3. Reserve requirement policy

i. Higher ratios on both TL and FX deposits

ii. Unremunerated

iii. Differentiated rates across maturities

4. Tighter liquidity management

4141

…which aims financial stability as well as price stability

Financial stability objectives

1. Lower leverage ratios

2. Longer maturities of debt liabilities

3. Stronger FX positions

4. Better and efficient management of financial risk

Interest rate levels required for price stability and financial

stability are not always consistent with each other.

The lower policy rate and wider interest rate corridor of the new policy.

0

5

10

15

20

25

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

Policy Rate

Interest Rate Corridor

Policy Rate and Interest Rate Corridor(%)

Source: CBRTLast observations:May 2011

The new reserve requirement policy

0

2

4

6

8

10

12

14

16

18

Nov 2010 Step 1 (Dec 2010) Step 2 (Jan 2011) Step 3 (Apr 2011) Step 4 (Apr 2011)

Longer Than 1 Year

6-12 Months

3-6 Months

1-3 Months

Up to 1 Month

Demand Deposit

Reserve Requirement Rates(%)


Reserve requirement policy is widely used in other emerging economies.

Change Since the Start of the Crisis(percentage points)

Current Reserve Requirement Ratios(%)

20.5 20

13.511.8

10.0

8

64 3.5

0

5

10

15

20

25

Chin

a

Braz

il

Turk

ey (

TRY)

Turk

ey (

FX)

Peru

Indo

nesi

a

Indi

a

Russ

ia

Pola

nd

-6

-4

-2

0

2

4

6

8

10

Braz

il

Chin

a

Turk

ey (

TRY)

Peru

Indo

nesi

a

Russ

ia

Turk

ey (

FX)

Indi

a

Pola

nd

Decreases


Central Bank Liquidity(Billion TRY)

Funding structue reshaped after monetary exit


-30

-20

-10

0

10

20

30

40

50

01.09 04.09 07.09 10.09 01.10 04.10 07.10 10.10 01.11 04.11

Sterilization Through O/N BorrowingWeekly Repo Funding3-Month Repo FundingNet Liquidity Provided

QT 2QT 1

Maturities of deposits are lengthening.

Breakdown of TL Deposits by Maturities

(%)Average Maturity of TL Deposits

(Day)

5151 51 51

5050

51 51 5151

51

52

53

55

57

48

49

50

51

52

53

54

55

56

57

01.10 03.10 05.10 07.10 09.10 11.10 01.11 03.11

13.5 14.4

28.316.3

53.158.2

4.08.7

2.41.0

0

10

20

30

40

50

60

70

80

90

100

17.12.2010 29.04.2011

Up To 1 Yearand More

Up To 6-Month

Up To 3-Month

Up To 1Month

Sight

Source: BRSA & own calculationsLast Observation: April 2011

Macro prudential measures taken by other authorities in Turkey

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

IV. Outcomes of the New Policy

Flexibility and volatility have been achievedin the Money Markets

Overnight Interest Rates(%)

Swap Rates(%)


0

1

2

3

4

5

6

7

8

9

01.1

0

02.1

0

03.1

0

04.1

0

05.1

0

06.1

0

07.1

0

08.1

0

09.1

0

10.1

0

11.1

0

12.1

0

01.1

1

02.1

1

03.1

1

04.1

1

05.1

1

1-Month

1-Year

Overnight

0

1

2

3

4

5

6

7

8

9

10

08-1

0

09-1

0

10-1

0

11-1

0

12-1

0

01-1

1

02-1

1

03-1

1

04-1

1

CBRT Lending Rate

Policy Rate

Overnight Interest RateCBRT Borrowing Rate

Liquidity is tightening

Reserve Requirements Balances(billion TRY)


TRY Required Reserves

FX Required Reserves

0

10

20

30

40

50

60

7001

.09

03.0

9

05.0

9

07.0

9

09.0

9

11.0

9

01.1

0

03.1

0

05.1

0

07.1

0

09.1

0

11.1

0

01.1

1

03.1

1

05.1

1

The new reserve requirements is effective as of Apr 29, 2011(approx. 1.5 billion TRY and 1.4 billion USD)

Yield Curve*(%)

Inflation Expectations(%.)

Source: CBRTLast Observation: April 2011*Calculated from the compunded returns on bonds quoted in ISE by using ENS method.

Yield curve becomes steeper andinflation expectations well-anchored.

6.5

7

7.5

8

8.5

9

9.5

0.5 1 1.5 2 2.5 3 3.5 4

May 12, 2011

October 1, 2010

4

5

6

7

8

9

10

12-0

7

06-0

8

12-0

8

06-0

9

12-0

9

06-1

0

12-1

0

12- month forward

24 - month forward

Impact of New Policy Mix on Currency

TRY and Other EM Currencies Against USD

( 4 Jan 2010= 1)


0.9

0.95

1

1.05

1.1

1.15

01.10 03.10 05.10 07.10 09.10 11.10 01.11 03.11 05.11

TRY

EM Average

Appreciation

DepreciationAnnouncement of QE2

by the FED

Daily credit growth

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

Source: CBRTLast observations:Apr’il 2011

0

10

20

30

40

50

60

70

80

Oca

Şub

Mar Nis

May

Haz

Tem

Ağu Ey

l

Eki

Kas

Ara

2010 2011 2006-2010 Ortalama

20 Günlük Ortalama TP

V. Discussion on Monetary and Macroprudential Policies

Macroprudential policies

Effective policy to curb credit growth:

1. Quantitative measures

i) Restrictions on lenders (e.g. Reserve requirement policy)

ii) Restrictions on borrowers (e.g. LTV, ITD etc.)

2. Pricing measures: Raising lending rates through policy rate

increases or levy on lending rates

Answer depends on

1. whether there exists a credit bubble

2. whether there exists a monetary policy driven capital flows

3. Mandates of central banks

Policies for non-core liabilities

Whether target non-core liabilities?

i) Reserve requirements on FX deposits

ii) Capital controls

iii) Levy on non-core liabilities

Answer depends on

1. where the economy is in the financial cycle

2. the importance of systemic risk spillovers

Monetary policy

Separation of monetary policy from liquidity management

• Interest on reserves

• Banks put funds into a pecking order

Wider interest rate corridor: constructive ambiguity

Optimal coordination between monetary and financial policy

Turalay KencDeputy Governor

May 2011

Macroeconomic and Financial Stability in Turkey

Turalay Kenc Deputy Governor May 2011€¦ · 1206 0307 0607 0907 1207 0308 0608 0908 1208 0309...

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