4. A Different Sort of Problem
EU: Deleveraging
Turkey: Excessive Credit Growth
4
5. Against Excessive Credit Growth
Predominant Policy
Before August 2011 Macroprudential Tightening
After October 2011 Monetary Tightening
5
6. Policies: Post-Lehman
Shock
Inflation Outcome of monetary,
financial & fiscal policies
IV III
𝛑*
(target inflation)
II
Output
𝐘
(potential output)
6
7. Policies: Global Monetary Expansion
Shock
Inflation Outcome of monetary,
financial & fiscal policies
IV III
𝛑*
(target inflation)
I
Output
𝐘
(potential output)
7
8. Policies: Eurozone Crisis
Shock
Inflation Expected outcome of
monetary, financial & fiscal
policies
2011Q4 – Present III
𝛑*
(target inflation)
I II
Output
𝐘
(potential output)
8
17. Real Exchange Rates
CPI Based REER*
(Base year: 2003)
4.95
QE2 Policy
4.9
Reaction
4.85
4.8
4.75
4.7
4.65
4.6
4.55
CPI Based REER
4.5
Trend
4.45
4.4
*Reel effective exchange rate, Natural logarithms.
Source: CBRT.
17
18. Real Exchange Rates
CPI Based (Developed Economies) REER*
(Base year: 2003)
QE2 Policy
4.95 Reaction
4.9
4.85
4.8
4.75
4.7
4.65
4.6
4.55
CPI Based (Developed Economies)
REER
4.5 Trend
4.45
4.4
*Natural logarithms.
Source: CBRT.
18
19. Real Exchange Rates
CPI Based (Developing Economies) REER*
(Base year: 2003)
4.95
QE2 Policy
4.9
Reaction
4.85
4.8
4.75
4.7
4.65
4.6
4.55
CPI Based (Developing Economies) REER
4.5
4.45 Mean
4.4
*Natural logarithms.
Source: CBRT.
19
20. Exchange Rate Volatility
Volatility in Emerging Market Currencies
(Percent, Implied for the next 12 months)
30
Turkey
25 Emerging Economies
20
15
10
5
*Emerging market currencies include Brazil, Chile, Czech Republic, Hungary, Mexico, Poland,
Source: Bloomberg, CBRT. South Africa, Indonesia, South Korea and Colombia.
Latest Observations: April 16,2012
20
21. Quality of Capital Inflows
Main Sources of Current Account Deficit Finance
(12-months Cumulative, Billion USD)
80
Portfolio and Short-Term*
70
FDI and Long-Term**
60
Current Account Deficit
50
40
30
20
10
0
-10
-20
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.
21
29. Inflation
Inflation in Turkey vs. Emerging Markets
(Percent, Weighted Average)
30
25
20
15
Turkey
10
5
Emerging Markets
0
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
30. Inflation Expectations
Medium Term Inflation Expectations
10
12 month 24 month Target Inflation
9
8
7
6
5
4
3
2
Source: CBRT.
* CBRT Survey of Expectations.
30
31. Inflation Forecasts and Realizations
Forecast Range* Uncertainty Band Year-End Inflation Targets Output Gap
12
10
8 Control
Horizon
6
Percent
4
2
0
-2
-4
Source: CBRT.
* Shaded region indicates the 70 percent confidence interval for the forecast.
31
32. 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
