CENTRAL BANK OF THE REPUBLIC OF TURKEY THE IMPACTS OF THE CURRENT CRISIS ON OIC MEMBER COUNTRIES

Transcription

1 CENTRAL BANK OF THE REPUBLIC OF TURKEY THE IMPACTS OF THE CURRENT CRISIS ON OIC MEMBER COUNTRIES Durmuş Yılmaz Governor Istanbul October 29

2 25Q1 26Q1 27Q1 2Q1 29Q1 21Q1 Global Financial Crisis The effect of the global financial crisis on world economies felt in an abrupt and devastating manner in the last quarter of 2. Global GDP Growth (25 Q1 21 Q, qoq, percent) 29 Growth Projections for Selected Countries (percent) Emerging and Developing Economies Advanced Economies Estimates Iceland Estonia Singapore Ukraine Russia Germany Japan Turkey Italy United Kingdom Mexico Croatia Czech Republic Malaysia Hungary United States Bulgaria Argentina Brazil South Africa Colombia Chile Indonesia India China Source: IMF Source: IMF, CBT 2

3 Recent Developments in Financial Markets A certain degree of optimism has prevailed in global financial markets recently. This favorable atmosphere has implications on real economy, too. Risk Appetite Index (Jan 26 Sep 29) Global Purchasing Managers Index and Leading Indicators (Jan 2 Sep 29) Euphoria Global Purchasing Managers Index Panic 35 3 Global Leading Indicators (rhs) Source: Credit Suisse, CBT Source: Bloomberg, Goldman Sachs, CBT 3

4 Q1 Q2 Q3 Q 5 Q1 5 Q2 5 Q3 5 Q 6 Q1 6 Q2 6 Q3 6 Q 7 Q1 7 Q2 7 Q3 7 Q Q1 Q2 Q3 Q 9 Q1 9 Q Effects of the Global Crisis on the Turkish Economy The global turmoil led to a significant slowdown in economic activity in developing countries, and Turkey was no exception. GDP (2 Q1 29 Q2, 2 Q1 = 1, SA) Change in Exports and Imports (Mar 26 Jul 29, yoy percentage change, 3-month moving average) Exports Imports 7-5 Source: Turkstat, CBT Source: Turkstat, CBT

5 Production Developments and Orders Expectations Industrial production gained stability in the second quarter of 29. Recent indicators point to a gradual recovery. Industrial Production Index (Jan 26 Aug 29,sa) Capacity Utilization Rate (Jan 26 Aug 29,sa) Demand Indicators (Jan 27 Aug 29) Industrial Production (rhs) Domestic Order Expectations* Capacity Utilization PMI New Orders Index (SA, rhs) Source: Turkstat, CBT *Business Tendency Survey (Next 3 months) Source: ABN Ambro, CBT 5

6 6-II 6-III 6-IV 7-I 7-II 7-III 7-IV -I -II -III -IV 9-I 9-II 9-III Investment and Employment Forecasts A significant acceleration in aggregate demand is not expected in the foreseeable future. Investment Expenditures (26 Q1 29 Q3, percent) Unemployment Rates (Jan 26 - June 29, sa, percent) Non-agricultural Unemployment Rate Weighted Index* Machinery and Equipment Investment Unemployment Rate * An Index compiled by using data pertaining to production and imports of investment goods ** Source: TURKSTAT, CBT Source: TURKSTAT, CBT 6

7 Financial Developments in Turkey The recent recovery in global risk perceptions has favorably affected Turkey s risk premium, domestic market interest rates and volatility in exchange rates. Risk Indicators (Jan 2 Sep 29, bps) Exchange Rate Volatility and Benchmark Bond Yields (Jan 2 Sep 29, monthly average, percent) EMBI+ EMBI+Turkey Benchmark Bond Yields (real*) TRY/US Exchange Rate Volatility (rhs) Benchmark Bond Yields (nominal) Source: Bloomberg, CBT * Based on the inflation expecattions for the next 12 months Source: BRSA, CBT 7

8 CDS changei (bais points) Financial Stability in Turkey Rise in Turkey risk premium lagged behind those of many other emerging market economies. Turkey has shown significant resistance to the crisis --- more than implied by her credit rating. Exchange Rate Volatility (Sep 2 Aug 29, standard deviation of daily changes in exchange rates) Change in Credit Ratings and Risk Premia of Countries (Sep 2 Mar 29) Colombia 5 Russia Chile Czech Rep. Mexico 35 Hungary India Turkey New Zealand Hungary Poland S.Korea Chile Mexico S.Korea Poland S.Africa Czech Rep.. Columbia Brazil Brasil S.Africa S&P Credit Ratings (1=A+, 9=BB-) Turkey Source: Bloomberg, CBT Note: Trend line includes all countries except Turkey Source: Bloomberg, CBT

9 Monetary Policy Stance With the disappearance of factors that were driving the inflation rate up, CBT started monetary easing and thereby assumed a leading role amongst the emerging Jan 2 Aug 2 markets. Policy Rate Change in Emerging Market Economies (percent) Aug 2 Sep 29 Romania Ukraine Iceland Brasil Chile Turkey Peru Indonesia S.Afirca Russia Hungary Mexico Poland Colombia Tailand Taiw an S.Korea China Malaysia Czech Rep Israel Turkey Chile Colombia Peru S.Afirca Brasil Egypt Mexico Iceland Israel S.Korea Indonesia Poland Tailand Taiwan Czech Rep China Philippines Romania Ukraine Source: CBT, Central Banks Source: CBT, Central Banks 9

10 Financial Tightness Indicators The tightness in financial conditions has come down, but it still persists to some degree despite policy rate cuts since Nov Interest Rates (Apr 27 Sep 29, annual, percent) Interest Rates on Commercial Loans* Interest Rates on Consumer Loans * Difference between Deposit Rate and Interest Rate on Commercial Credits and Consumer Loans * (Jul 27 Sep 29, annual, percent) Consumer Loans (Margin over Deposit Rate) 1 12 Bank Deposit Rate** 1 CBT Policy Rate 2 Commercial Loans (Margin over Deposit Rate) 6 Weighted average flow interest rates. Interest rate of consumer loans is the weighted average of automobile loans, housing loans and consumer loans. * Excluding interbank deposits. Source: BRSA, CBT * Weighted average flow interest rates. Source: CBT 1

11 9 Q1 9 Q2 9 Q3 9 Q 1 Q1 1 Q2 1 Q3 1 Q 11 Q1 11 Q2 11 Q3 11 Q 12 Q1 12 Q2 Recovery in Economic Activity Following recent rate cuts and fiscal measures, we anticipate that growth will post positive figures from the last quarter onwards Central Bank s Output Gap Forecasts (29 Q1 212 Q2) Source: CBT 11

12 How Monetary Policy Evolved After 21? Rising Inflation III Adverse Supply Shock 2 Q2 Policy Response Target revision, Measured rate hikes Strong Demand and Adverse Supply Shock 26 Q2 Policy Response Strong monetary tightening II Price Stability Falling Inflation IV Weak Demand Shock 2 Q Policy Response Policy rate cuts Contracting GDP TARGET Sustainable Growth Favorable Supply Shock 23-5 Policy Response Precautionary rate cuts and Non-interest rate instruments: Stronger regulation and supervision Expanding GDP I 12

13 Monetary Policy Stance Bond yields fell down to single digits for the first time since 19s thanks to moderate recovery in risk perceptions, the Central Bank s rate cuts, and downward trend in inflation that confirmed the Central Bank s projections CBT Short-Term Interest Rates and Benchmark Bond Yield (Jan 2 Sep 29, compound, percent) Benchmark Bond Yield Policy Interest Rate Source: Undersecretariat of Treasury, CBT 13

14 Inflation Developments in Turkey In September, year-on-year inflation fell to 5.27 percent, whereas inflation excluding food and energy stood at 2. percent. Consumer Inflation (Jan 27 Sep 29, annual percentage change) Core Inflation (SCA-I) (Jan 27 Sep 29, annual percentage change) CPI Excluding Food and Energy 2. Source: TURKSTAT, CBT Source: TURKSTAT, CBT 1

15 Counter-Cyclical Public Finance One of the major factors determining the effectiveness of monetary policy in this period is developments in fiscal policy. Many countries are increasing their public expenditures within their means in order to revive domestic demand. India 2 Budget Deficit and Budget Deficit Forecasts* (Ratio to GDP, percent) United Developed Developing Kingdom Japan USA Turkey France Economies Economies China Mexico S.Africa Brasil * MTFF forecasts are used for Turkey and IMF forecasts for the rest. * Source: IMF, MT, CBT 15

16 Medium Term Fiscal Framework Short-term fiscal expansion should be backed by a credible medium term fiscal framework that would ensure fiscal discipline and debt sustainability EU-Defined Public Debt Stock and Targets (22 212, ratio to GDP) Maastricht Criterion: 6% Medium Term Programme Source: Medium Term Programme, Undersecretariat of Treasury, CBT 16

17 CENTRAL BANK OF THE REPUBLIC OF TURKEY THE IMPACTS OF THE CURRENT CRISIS ON OIC MEMBER COUNTRIES Durmuş Yılmaz Governor İstanbul October 29