Aug 19, 2015 - GDP continues to grow at a moderate pace, â¦. -10. -5. 0. 5. 10. 15. 20. 03/10 ..... development/investm
THE ECONOMIC OUTLOOK AND MONETARY POLICY
August 19, 2015
Overview: Macroeconomic Outlook and Monetary Policy
Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. External demand remains weak, while domestic demand contributes to growth moderately.
Processed food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators. Considering this delay and taking into account the uncertainty in domestic and global markets and the volatility in energy and food prices, the Committee decided to implement a tighter liquidity policy as long as deemed necessary.
The Committee also discussed the roadmap to be implemented before and after global monetary policy normalization and decided to publish a strategy document with today’s policy statement.
Future monetary policy decisions will be conditional on the improvements in the inflation outlook. Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook. 2
Outline
Economic Activity 2. External Balance 3. Inflation 4. Monetary and Financial Conditions 5. The Road Map 1.
3
ECONOMIC ACTIVITY
4
GDP continues to grow at a moderate pace, …. Contribution to Annual GDP Growth (Percentage Points) 20
Change in Inventories Net Exports Final Domestic Demand GDP
15
10
5
0
-5
Source: TURKSTAT.
03/15
12/14
09/14
06/14
03/14
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
09/10
06/10
03/10
-10
Last Observation: 2015 Q1
5
…driven mainly by consumption expenditures. Private Consumption Expenditures
Private Investment
(Seasonally Adjusted, 2011 Q1=100)
(Seasonally Adjusted, 2011 Q1=100) 105
115
100 110
95
105
90
85 100
80 75
95
70 90
65 60
85
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2010
2011
2012
2013
2014
2010
2015
2011
2012
2013
2014
2015
Public Consumption Expenditures
Public Investment
(Seasonally Adjusted, 2011 Q1=100)
(Seasonally Adjusted, 2013 Q1=100) 105
130
100
125
95
120
90
115
85
110 105
80
100
75
95
70
90
65 60
85 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2010
2011
2012
2013
2014
2015
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2010
2011
2012
2013
2014
2015
6
Industrial production continues to expand with the contribution from domestic orders, while exports stay relatively weak. Manufacturing Orders
Industrial Production and Capacity Utilization (Seasonally Adjusted) 130
(Seasonally Adjusted) 78
77
20
Exports 15
Domestic
125 76 10 75
120
74 115
73
0
72
Industrial Production
110
5
-5
Capacity Utilization (rhs)
71
Source: TURKSTAT, CBRT.
Last Observation: June 2015 for Industrial Production, July 2015 for Capacity Utilization.
Source: CBRT Business Tendency Survey.
07/15
04/15
01/15
10/14
07/14
04/14
01/14
10/13
07/13
04/13
01/13
10/12
07/12
04/12
-10
01/12
04/15
01/15
10/14
07/14
04/14
01/14
10/13
07/13
04/13
01/13
10/12
07/12
04/12
70
01/12
105
Last Observation: July 2015.
7
Consumer confidence and investment tendency point to a moderate private domestic demand. Investment and Employment Prospects
Consumer Confidence CNBC-e
(Seasonally Adjusted) Investment Tendency
TURKSTAT-CBRT (rhs)
110
90
Employment Tendency
25
85 100
20 80
90 75 80
15
70 65
10
70 60 5
60 55
Source: CNBC-e, TURKSTAT, CBRT.
Last Observation: July 2015 for CNBC-e Survey, July 2015 for TURKSTAT-CBRT Survey.
Source: CBRT Business Tendency Survey
07/15
04/15
01/15
10/14
07/14
04/14
01/14
10/13
07/13
04/13
01/13
10/12
07/12
04/12
0
01/12
05/15
01/15
09/14
05/14
01/14
09/13
05/13
01/13
09/12
05/12
50
01/12
50
Last Observation: July 2015.
8
52
27
Participation Rate (%) Employment (millions, right axis)
26
Thousands
Employment have continued to increase.
15
Unemployment Rate (percent) Non-farm Unemployment Rate (percent)
50 25
13
24
48
23 46
11
22
21
9
44 20
Source: TURKSTAT, Household Labor Force Survey, CBRT.
Last Observation: May 2015.
9
05/15
01/15
09/14
05/14
01/14
09/13
05/13
01/13
09/12
05/12
01/12
09/11
05/11
01/11
09/10
7
05/10
05/15
01/15
09/14
05/14
01/14
09/13
05/13
01/13
09/12
05/12
01/12
09/11
05/11
01/11
09/10
19
05/10
42
EXTERNAL BALANCE
10
Exports and imports continue to decline in USD terms, reflecting the movements in USD/Euro exchange rate, slowdown in global demand… Exports and Imports (Nominal y-o-y percentage change, 6-month MA) 20
Exports (excluding gold)
Imports (excluding gold)
15 10 5 0 -5 -10
Source: TURKSTAT.
05/15
03/15
01/15
11/14
09/14
07/14
05/14
03/14
01/14
11/13
09/13
07/13
05/13
03/13
01/13
11/12
09/12
07/12
05/12
03/12
01/12
-15
Last Observation: June 2015.
11
… and geopolitical developments,… Exports to Russia
Exports to Iraq
(Monthly, Million USD)
(Monthly, Million USD)
800
1400
700
1200
600
1000
500
800
400 600
300
Source: TURKSTAT
0115
0714
0114
0713
0113
0712
0112
0711
0111
0710
0110
0709
0415
1114
0614
0114
0813
0313
1012
0512
1211
0711
0211
0910
0410
0
1109
0
0609
200
0109
100
0109
400
200
Last Observation: June 2015.
12
…while exports to the EU continue to grow in Euro terms. Exports to European Union (12 months cumulative, billion Euros)
55
50
45
40
35
Source: TURKSTAT.
0115
0714
0114
0713
0113
0712
0112
0711
0111
0710
0110
0709
0109
0708
0108
0707
0107
30
Last Observation: June 2015.
13
Recently exports showed some recovery in real terms.. 135 130 125 120
115 110 105 100
export (excluding gold)
95
import (excluding gold)
90 1
2
3
2010
Source: CBRT.
4
1
2
3
2011
4
1
2
3
2012
4
1
2
3
2013
4
1
2
3
2014
4
1
2
2015
Last Observation: 2015 Q2.
14
The favorable impact of lower oil prices on the current account balance will be more pronounced in the forthcoming period. Energy Imports (12-Month Cumulative, Billion USD) 65 60 55 50 45 40 35
Source: TURKSTAT
0415
0115
1014
0714
0414
0114
1013
0713
0413
0113
1012
0712
0412
0112
1011
0711
0411
0111
1010
0710
0410
0110
30
Last Observation: June 2015.
15
Current account balance has improved markedly since 2011 and further improvement is expected in the forthcoming period. Current Account Balance (CAB) (12-Month Cumulative, Billion USD) -30 -35
CAD
-40
CAD (Excluding gold) -45 -50 -55 -60
-65 -70
Source: CBRT.
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
12/11
10/11
08/11
06/11
04/11
02/11
12/10
-80
10/10
-75
Last Observation: June 2015.
16
Current account deficit is largely financed through long term borrowing and FDI. (12-Months Cumulative, Billion USD) Portfolio and Short Term**
FDI and Long Term*
CAD
85 75 65 55 45 35
25 15 5
Source: CBRT.
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
12/11
10/11
08/11
06/11
04/11
02/11
12/10
10/10
-5
*Long term inflows are sum of banking and real sectors’ long term net credit and bonds issued by banks and the Treasury. Short term capital movements are sum of banking and real sectors' short term net credit and deposits in banks. Last Observation: June 2015.
17
INFLATION
18
Food and energy price developments help disinflation in the short run… (Annual Percentage Change) 13 12
CPI
H
I
11 10 9 8 7 6 5 4
Source: TURKSTAT.
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
12/11
10/11
08/11
3
Last Observation: July 2015.
19
… while exchange rate movements delay the improvement in the core indicators. Core Inflation Indicators H and I (Seasonally adjusted, Annualized 3-Month-Average, Percent) 16
H
I
14 12 10 8 6 4 2
02/1 1 05/1 1 08/1 1 11/1 1 02/1 2 05/1 2 08/1 2 11/1 2 02/1 3 05/1 3 08/1 3 11/1 3 02/1 4 05/1 4 08/1 4 11/1 4 02/1 5 05/1 5
0
Source: TURKSTAT, CBRT.
Last Observation: July 2015.
20
The decline in import prices limits the pass-through from exchange rates to domestic inflation. Import Price Index (2010=100) 260 240 220
Import Prices (TL) 200 180 160 140 Import Prices (USD)
120 100 80 60 0110 Source: TURKSTAT, CBRT.
0810
0311
1011
0512
1212
0713
0214
0914
0415
Last Observation: June 2015.
21
Inflation expectations are still above the desired levels. Inflation Expectations
8,5
(Percent) 8,0
7,5 12 months 7,0
6,5
24 months
6,0
5,5
Source: CBRT.
08/15
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
12/11
10/11
08/11
5,0
Last Observation: August 2015.
22
Monetary and Financial Conditions
23
Portfolio flows to emerging countries have been volatile ... Equity and Bond Flows to Emerging Markets (Billion USD, 4-Week Moving Sum) 35 30
Bonds
Equities
25 20 15 10 5 0 -5 -10 -15 -20 -25 -30
Source: EPFR.
07/15
05/15
03/15
01/15
11/14
09/14
07/14
05/14
03/14
01/14
11/13
09/13
07/13
05/13
03/13
01/13
11/12
09/12
07/12
05/12
03/12
01/12
-35
Last Observation: August 12, 2015.
24
… as well as the risk premium indicators ... Regional EMBI Indices (Basis Points) 700
700
EMBI Europe
EMBI Turkey
EMBI Latin America
EMBI Asia
600
600
500
500
400
400
300
300
200
200
100
100
Source: Bloomberg.
Last Observation: August 14, 2015.
25
… and the exchange rates. Implied FX volatility (1 month, Percent) 35
35
30
30
Turkey
Emerging Economies*
25
25
Source: Bloomberg
08/15
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
0
06/12
0
04/12
5
02/12
5
12/11
10
10/11
10
08/11
15
06/11
15
04/11
20
02/11
20
*Emerging market currencies include Brazil, Chile, Colombia, Mexico, Poland, Czech Republic, South Africa, Indonesia, Romania against USD. Last Observation August 14, 2015.
26
The liquidity policy has been tight and will be further tightened as long as deemed necessary. Interest Rates (Percent) 13
Interest Rate Corridor
CBRT Average Fund Rate
BIST Interbank Market O/N Rates
One-Week Repo Rate
13
Source: CBRT
08/15
07/15
06/15
05/15
04/15
03/15
02/15
01/15
12/14
3
11/14
3
10/14
4
09/14
4
08/14
5
07/14
5
06/14
6
05/14
6
04/14
7
03/14
7
02/14
8
01/14
8
12/13
9
11/13
9
10/13
10
09/13
10
08/13
11
07/13
11
06/13
12
05/13
12
Last Observation: August 14, 2015.
27
Yield curve has been inverted due to tight liquidity policy. Interest Rates (Percent) 5-Year Market Rate
12
3-Month Market Rate
12
10
10
8
8
6
6
4
4 5 year-3 month spread
Source: CBRT.
08/15
06/15
04/15
02/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
04/13
02/13
12/12
10/12
08/12
06/12
04/12
02/12
-2 12/11
-2 10/11
0
08/11
0
06/11
2
04/11
2
Last Observation: August 14, 2015.
28
Bank lending rates reflect the cautious macroprudential and monetary policies. Interest Rates on Consumer Loans (Percent) 21
19
17 Other 15 Automobile 13
Housing 11
9
Source: CBRT.
07/15
04/15
01/15
10/14
07/14
04/14
01/14
10/13
07/13
04/13
01/13
10/12
07/12
04/12
01/12
10/11
07/11
04/11
01/11
10/10
07/10
04/10
01/10
7
Last Observation: July 31, 2015.
29
Loan volumes continue to expand at a reasonable pace due to cautious monetary policy stance and macroprudential measures. Total Loan Growth Rate (Year on Year Change, Percent) 40
35
30
25
20
15
Source: CBRT.
07/15
05/15
03/15
01/15
11/14
09/14
07/14
05/14
03/14
01/14
11/13
09/13
07/13
05/13
03/13
01/13
11/12
09/12
07/12
05/12
03/12
01/12
11/11
09/11
07/11
05/11
03/11
01/11
10
Last Observation: August 07, 2015. Total loan is inclusive of all types of banks (deposit banks, participation banks, and development/investment banks) and credit cards. Adjusted for exchange rate.
30
Commercial loans grow at a faster pace than consumer loans, contributing to price stability, financial stability, and the rebalancing process.
Loan Growth Rates
50
50
(Annual Percentage Change)
45
45
40
40
35
35
30
30
Commercial
25
25
20
20
15
15
Consumer
10
10
Source: CBRT.
0715
0515
0315
0115
1114
0914
0714
0514
0314
0114
1113
0913
0713
0513
0313
0113
1112
0912
0712
0512
0312
0112
1111
0911
0711
0511
0311
0111
1110
0910
0710
0
0510
0
0310
5
0110
5
Last Observation: August 07, 2015. Inclusive of loans extended by all types of banks (deposit banks, Participation banks, and development/investment banks). FX adjusted.
31
ROAD MAP DURING THE NORMALIZATION OF GLOBAL MONETARY POLICIES
32
Simplification of the Interest Rate Policy Implementation During normalization of global monetary policies, the interest rate corridor will be made more symmetric around one-week repo interest rate and the width of the corridor will be narrowed.
13
Interest Rate Corridor
CBRT Average Fund Rate
BIST Interbank Market O/N Rates
One-Week Repo Rate
13
Source: CBRT
08/15
07/15
06/15
05/15
04/15
03/15
02/15
01/15
12/14
3
11/14
3
10/14
4
09/14
4
08/14
5
07/14
5
06/14
6
05/14
6
04/14
7
03/14
7
02/14
8
01/14
8
12/13
9
11/13
9
10/13
10
09/13
10
08/13
11
07/13
11
06/13
12
05/13
12
Last Observation: August 14, 2015.
33
Simplifying the Operational Framework of the TL Liquidity Management
The quotation on the lending to primary dealers via repo transactions will be terminated without changing the funding cost of primary dealers from the CBRT (before normalization).
Collateral conditions normalization).
will
be
simplified
(before
and
during
34
Operational Framework with Primary Dealers Facility 12.25 150 bp
CBRT O/N Lending Rate
10.75
50 bp
10.25 PD Repo Rate
350 bp
7.50 One Week Repo Rate 7.25 CBRT O/N Borrowing Rate
10:00
11:00
725 bp
15:00 OMO+Interbank
16:00
17:00
0.0 Hours
LON
35
Operational Framework without Primary Dealers Facility 12.25 150 bp
CBRT O/N Lending Rate
10.75 350 bp
7.50 One Week Repo Rate 7.25 CBRT O/N Borrowing Rate
10:00
11:00
725 bp
15:00 OMO+Interbank
16:00
17:00
0.0 Hours
LON
36
FX Liquidity Measures: Flexible FX Sale Auctions Flexibility of FX sale auctions is increased to contain exchange rate volatility. FX Sale Auctions (Million USD ) 120
1200
Monthy Quantity of FX Sales* (Right Axis) Daily FX Sales
100
1000
80
800
60
600
40
400
20
200
Source: CBRT
08/15
07/15
06/15
05/15
04/15
03/15
02/15
01/15
12/14
11/14
10/14
09/14
08/14
0
07/14
0
06/14
*The value for August is as of August 14, 2015. Last Observation: August 14, 2015.
37
FX Liquidity Measures: Reserve Requirement Policies FX liquidity will be released via reserve requirement policies (before and during norm.). CBRT Reserves (Billion USD ) FX for FX RR
140
CBRT Other FX Reserve
ROM FX
CBRT Other Gold Reserves
Gold for Precious Metal
ROM Gold
120 100 80 60 40 20
Source: CBRT
07/15
05/15
03/15
01/15
12/14
10/14
08/14
06/14
04/14
02/14
12/13
10/13
08/13
06/13
05/13
03/13
01/13
11/12
09/12
07/12
05/12
03/12
01/12
11/11
0
09/11
Last Observation: July 31, 2015.
38
FX Liquidity Measures: Foreign Exchange Deposit Market
Borrowing limits on foreign exchange deposit accounts will be increased (before normalization).
After the planned change, size of the FX liquidity financial system can access from CBRT, which is the sum of FX holdings in ROM and limits of the foreign exchange deposit market, will be considerably above the external debt payments of the banks in the coming year.
39
Measures to Support Financial Stability: Lengthening the Maturity of Noncore FX Liabilities FX required reserve ratios for the newly originated FX noncore liabilities of the banks will be adjusted to encourage further maturity extension (before and during). Maturity Breakdown of Non-Core FX Liabilities (Percent)
60
Required Reserve Measures
55 Up to 1-Year
50
45
40
Longer than 3-Years
35
Source: CBRT
07/15
06/15
05/15
04/15
03/15
02/15
01/15
12/14
11/14
10/14
09/14
08/14
07/14
06/14
05/14
04/14
03/14
02/14
30
01/14
Last Observation: July 31, 2015.
40
Measures to Support Financial Stability: Supporting Turkish Lira Core Liabilities
The remuneration rate of Turkish lira required reserves may be revised to reduce the intermediation cost of banking sector and to support core liabilities. Credit/Deposit Ratio (Percent) 130
130
120
120
110
110
100
100
90
90
Announcement of Required Reserve Measures in Financial Stability Report
80
80
Source: BRSA
0515 0715
1114 0115 0315
0914
0714
0913 1113 0114 0314 0514
0713
0113 0313 0513
0912 1112
0512 0712
0112 0312
0911 1111
0511 0711
1110 0111 0311
0910
0510 0710
70
0110 0310
70
Last Observation: August 07, 2015.
41
Measures to Support Financial Stability: Remuneration of FX Required Reserves The remuneration rate of the USD denominated required reserves, reserve options and free reserves held at the CBRT will be held close to the upper end of the Fed funds target rate range (before and during normalization). Euro
USD
Deposit Rate (EUR) (%)
Deposit Rate (USD) (%) 5
Remuneration Rates Applied To Req. Res. in USD (%) (Right Axis )
4,5 4
5 4,5
2,5
2,5
Commission Rates Applied to Accounts in EUR (%) (Right Axis)
2
2
4
3,5
3,5
3
1,5
1,5
3
2,5
2,5
2
2
1,5
1
1
0,5
0,5
1,5
1
1
0
0
0,5
Source: CBRT
0815
-0,5
0715
-0,5
0615
0815
0715
0
0615
0
0515
0,5
0515
Last Observation: August 14, 2015.
42
Overview: Macroeconomic Outlook and Monetary Policy
Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. External demand remains weak, while domestic demand contributes to growth moderately.
Processed food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators. Considering this delay and taking into account the uncertainty in domestic and global markets and the volatility in energy and food prices, the Committee decided to implement a tighter liquidity policy as long as deemed necessary.
The Committee also discussed the roadmap to be implemented before and after global monetary policy normalization and decided to publish a strategy document with today’s policy statement.
Future monetary policy decisions will be conditional on the improvements in the inflation outlook. Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook. 43
THE ECONOMIC OUTLOOK AND MONETARY POLICY
August 19, 2015