33
THE ECONOMIC OUTLOOK AND MONETARY POLICY March 25, 2016
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THE ECONOMIC OUTLOOK AND MONETARY POLICY
March 25, 2016
2
Overview: Macroeconomic Outlook and Monetary Policy
• The favorable developments in the terms of trade and the moderatecourse of consumer loans contribute to the improvement in the currentaccount balance.
• Demand from the European Union economies support exports at anincreasing pace, despite elevated geopolitical risks in other exportmarkets.
• Recently, global volatility has eased to some extent. Moreover, the useof the policy instruments laid out in the roadmap published in August2015 reduced the need for a wide interest rate corridor.
• In this respect, the Committee decided to take a measured steptowards simplification.
• However, improvement in the underlying core inflation trend remainslimited, necessitating the maintenance of a tight liquidity stance.
3
Outline
1. Economic Activity
2. External Balance
3. Inflation
4. Monetary and Financial Conditions
4
ECONOMIC ACTIVITY
5
Source: TURKSTAT.
Annual GDP Growth and Contributions(Percentage Points)
GDP continues to grow at a robust and steady pace.
-10
-5
0
5
10
15
20
03
/10
06
/10
09
/10
12
/10
03
/11
06
/11
09
/11
12
/11
03
/12
06
/12
09
/12
12
/12
03
/13
06
/13
09
/13
12
/13
03
/14
06
/14
09
/14
12
/14
03
/15
06
/15
09
/15
Change in Inventories
Net Exports
Final Domestic Demand
GDP
Last Observation: 2015 Q3
Confidence indicators display a volatile course.
6
Consumer Confidence Investment and Employment Prospects(Seasonally Adjusted)
Source: Bloomberg HT, TURKSTAT, CBRT.
Last Observation: February 2016 for Bloomberg HT Survey,
March 2016 for TURKSTAT-CBRT Survey.Source: CBRT Business Tendency Survey
Last Observation: March 2016.
50
55
60
65
70
75
80
85
90
50
60
70
80
90
100
110
01
/12
05
/12
09
/12
01
/13
05
/13
09
/13
01
/14
05
/14
09
/14
01
/15
05
/15
09
/15
01
/16
Bloomberg HT TURKSTAT-CBRT (rhs)
0
5
10
15
20
25
01
/12
04
/12
07
/12
10
/12
01
/13
04
/13
07
/13
10
/13
01
/14
04
/14
07
/14
10
/14
01
/15
04
/15
07
/15
10
/15
01
/16
Investment Tendency Employment Tendency
Recently, industrial production has continued to expand at a moderate pace, while export orders have somewhat weakened.
7
Industrial Production and Capacity Utilization(Seasonally Adjusted)
Business Orders (Survey Outcome)
(Last 3 months, Seasonally Adjusted)
Source: TURKSTAT, CBRT. Last Observation: January 2016 for Industrial Production,
March 2016 for Capacity Utilization.Source: CBRT Business Tendency Survey. Last Observation: March 2016.
70
71
72
73
74
75
76
77
78
105
110
115
120
125
130
01
/12
04
/12
07
/12
10
/12
01
/13
04
/13
07
/13
10
/13
01
/14
04
/14
07
/14
10
/14
01
/15
04
/15
07
/15
10
/15
01
/16
Industrial Production
Capacity Utilization (rhs)
-10
-5
0
5
10
15
20
01
/14
03
/14
05
/14
07
/14
09
/14
11
/14
01
/15
03
/15
05
/15
07
/15
09
/15
11
/15
01
/16
03
/16
Exports Domestic
Source: TURKSTAT, Household Labor Force Survey, CBRT.
Employment continues to increase at a steady pace.
Last Observation: December 2015.
8
7
9
11
13
15
05
/10
09
/10
01
/11
05
/11
09
/11
01
/12
05
/12
09
/12
01
/13
05
/13
09
/13
01
/14
05
/14
09
/14
01
/15
05
/15
09
/15
Unemployment Rate (percent)
Non-farm Unemployment Rate (percent)
19
20
21
22
23
24
25
26
27
28
42
44
46
48
50
52
54
05
/10
09
/10
01
/11
05
/11
09
/11
01
/12
05
/12
09
/12
01
/13
05
/13
09
/13
01
/14
05
/14
09
/14
01
/15
05
/15
09
/15
Tho
usa
nd
sParticipation Rate (%)
Employment (millions, right axis)
9
EXTERNAL BALANCE
10
Source: TURKSTAT.
Exports to European Union
(12 months cumulative, billion Euros)
Demand from the European Union economies support exports at an increasing pace, ….
Last Observation: : January 2016.
30
35
40
45
50
55
60
01
07
05
07
09
07
01
08
05
08
09
08
01
09
05
09
09
09
01
10
05
10
09
10
01
11
05
11
09
11
01
12
05
12
09
12
01
13
05
13
09
13
01
14
05
14
09
14
01
15
05
15
09
15
01
16
…. despite elevated geopolitical risks in other export markets.
11
Exports to Russia(Monthly, Million USD)
Exports to Iraq(Monthly, Million USD)
Source: TURKSTAT Last Observation: January 2016.
0,0
100,0
200,0
300,0
400,0
500,0
600,0
700,0
800,0
01
09
06
09
11
09
04
10
09
10
02
11
07
11
12
11
05
12
10
12
03
13
08
13
01
14
06
14
11
14
04
15
09
15
0,0
200,0
400,0
600,0
800,0
1000,0
1200,0
1400,0
01
09
06
09
11
09
04
10
09
10
02
11
07
11
12
11
05
12
10
12
03
13
08
13
01
14
06
14
11
14
04
15
09
15
12
Source: TURKSTAT
The favorable impact of lower oil prices on the current account balance is expected to continue in the forthcoming period.
Last Observation: January 2016.
Energy Imports
(12-Month Cumulative, Billion USD)
25
30
35
40
45
50
55
60
65
01
10
03
10
05
10
07
10
09
10
11
10
01
11
03
11
05
11
07
11
09
11
11
11
01
12
03
12
05
12
07
12
09
12
11
12
01
13
03
13
05
13
07
13
09
13
11
13
01
14
03
14
05
14
07
14
09
14
11
14
01
15
03
15
05
15
07
15
09
15
11
15
01
16
13
Source: CBRT.
The improvement in the cumulative current account balance is expected to continue in the coming periods.
Last Observation: January 2016.
Current Account Balance (CAB)(12-Month Cumulative, Billion USD)
-80
-70
-60
-50
-40
-30
-20
-10
0
10
/10
12
/10
02
/11
04
/11
06
/11
08
/11
10
/11
12
/11
02
/12
04
/12
06
/12
08
/12
10
/12
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
04
/15
06
/15
08
/15
10
/15
12
/15
CAD
CAD (Excluding gold)
14
Source: CBRT.
(12-Months Cumulative, Billion USD)
Current account deficit is financed through long term borrowing and FDI flows.
*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: January 2016.
-5
5
15
25
35
45
55
65
75
85
10
/10
12
/10
02
/11
04
/11
06
/11
08
/11
10
/11
12
/11
02
/12
04
/12
06
/12
08
/12
10
/12
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
04
/15
06
/15
08
/15
10
/15
12
/15
Portfolio and Short Term FDI and Long Term CAD
15
INFLATION
16
Source: TURKSTAT.
(Annual Percentage Change)
Headline inflation has declined recently, but core indicators have remainedat high levels due to lagged impact of exchange rate developments.
Last Observation: February 2016.
3
4
5
6
7
8
9
10
11
12
13
08
/11
10
/11
12
/11
02
/12
04
/12
06
/12
08
/12
10
/12
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
04
/15
06
/15
08
/15
10
/15
12
/15
02
/16
CPI H I
Cost push inflationary pressures have eased in recent months due toa gradual fall in imported input prices.
17
Import Price Index(2010=100)
Source: TURKSTAT, CBRT. Last Observation: January 2016.
50
70
90
110
130
150
170
190
010
30
503
090
30
104
050
40
904
010
50
505
090
50
106
050
60
906
010
70
507
090
70
108
050
80
908
010
90
509
090
90
110
051
00
910
011
10
511
091
10
112
051
20
912
011
30
513
091
30
114
051
40
914
011
50
515
091
50
116
Import Prices (in USD) Import Prices (in TL)
18
Source: CBRT.
Medium term inflation expectations have slightly improved in March.
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
08
/11
10
/11
12
/11
02
/12
04
/12
06
/12
08
/12
10
/12
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
04
/15
06
/15
08
/15
10
/15
12
/15
02
/16
Inflation Expectations(Percent)
12 months
24 months
Last Observation: March 2016.
19
Monetary and Financial Conditions
20
Recently, global volatility has eased to some extent and risk appetite has improved.
VIX and MOVE Indices
(5-Day Average)
Source: CBRT*The shaded area indicates the period after Fed rate hike.
Last Observation: March 22, 2016.
40
55
70
85
100
115
130
10
15
20
25
30
35
40
01
/15
02
/15
03
/15
04
/15
05
/15
06
/15
07
/15
08
/15
09
/15
10
/15
11
/15
12
/15
01
/16
02
/16
03
/16
VIX (Percent)
MOVE (Basis Points, Right Axis)
21
Source: EPFR.
Equity and Bond Flows to Emerging Markets(Billion USD, 4-Week Moving Sum)
As a response, portfolio flows to emerging economies havedisplayed some recovery in recent weeks, …
Last Observation: March 16, 2016.
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
35
40
01
/12
03
/12
05
/12
07
/12
09
/12
11
/12
01
/13
03
/13
05
/13
07
/13
09
/13
11
/13
01
/14
03
/14
05
/14
07
/14
09
/14
11
/14
01
/15
03
/15
05
/15
07
/15
09
/15
11
/15
01
/16
03
/16
Bonds
Equities
Source: Bloomberg.
… which has ben accompanied by falling risk premiums.
Last Observation: March 22, 2016.
22
100
200
300
400
500
600
700
800
100
200
300
400
500
600
700
800
04
/11
06
/11
08
/11
10
/11
12
/11
02
/12
04
/12
06
/12
08
/12
10
/12
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
04
/15
06
/15
08
/15
10
/15
12
/15
02
/16
EMBI Europe EMBI Turkey EMBI Latin America EMBI Asia
Regional EMBI Indices(Basis Points)
23
Source: Bloomberg
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
02
/11
04
/11
06
/11
08
/11
10
/11
12
/11
02
/12
04
/12
06
/12
08
/12
10
/12
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
04
/15
06
/15
08
/15
10
/15
12
/15
02
/16
Emerging Economies* Turkey
Roadmap
Implied FX volatility(1 month, Percent)
The volatility of the Turkish lira has declined relatively since theadoption of the policy instruments set out in the August 2015 roadmap.
*Emerging market currencies include Brazil, Chile, Colombia, Mexico, Poland, Czech Republic, South Africa, Indonesia, Romania against USD.
Last Observation: March 22, 2016.
24
Summary of the MPC Minutes (February 2016)
• "The Committee stated that the wide interest rate corridor hascontributed markedly to containing exchange rate volatility intimes of heightened global volatility. The need for such aninstrument would be reduced, should the decline in globalvolatility prove persistent.
• Another factor reducing the need for a wide interest rate corridoris the effective use of the policy instruments laid out in theroadmap published in August. Excessive fluctuations in bothexchange rates and loans have waned owing to the launch andeffective use of these instruments.
• The Committee still maintains the view that the monetary policymay be implemented within a narrower and more standardinterest rate corridor, should global volatilities post a permanentdecline or the policy tools of the August roadmap permanentlycontain the effects of the global volatility on the Turkish economy."
25
Source: CBRT Last Observation: March 23, 2016.
3
4
5
6
7
8
9
10
11
12
13
3
4
5
6
7
8
9
10
11
12
13
05
/13
06
/13
07
/13
08
/13
09
/13
10
/13
11
/13
12
/13
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
03
/15
04
/15
05
/15
06
/15
07
/15
08
/15
09
/15
10
/15
11
/15
12
/15
01
/16
02
/16
03
/16
04
/16
Interest Rate Corridor CBRT Average Fund Rate One-Week Repo Rate
Interest Rates(Percent)
In light of recent developments, the Committee decided to take a measured step towards simplification.
26
Source: CBRT Last Observation: March 23, 2016.
3
4
5
6
7
8
9
10
11
12
13
3
4
5
6
7
8
9
10
11
12
13
05
/13
06
/13
07
/13
08
/13
09
/13
10
/13
11
/13
12
/13
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
03
/15
04
/15
05
/15
06
/15
07
/15
08
/15
09
/15
10
/15
11
/15
12
/15
01
/16
02
/16
03
/16
04
/16
Interest Rate Corridor CBRT Average Fund Rate
BIST Interbank Market O/N Rates One-Week Repo Rate
Interest Rates(Percent)
Yet, improvement in the underlying core inflation trend remains limited, necessitating the maintenance of a tight liquidity stance.
27
Flexible FX Sale Auctions
• FX demand is expected to decline significantly in the upcomingperiods due to improvement in the current account deficit andlow energy prices.
• Meanwhile, the FX liquidity tools will continue to be used tostabilize the value of the Turkish lira.
• In this respect, flexible FX sales auctions will continue to supplyFX liquidity at amounts deemed necessary.
28
Source: CBRT. Last Observation: March 22, 2016.
Yield curve remains flat.
-2
0
2
4
6
8
10
12
14
-2
0
2
4
6
8
10
12
14
04
/11
06
/11
08
/11
10
/11
12
/11
02
/12
04
/12
06
/12
08
/12
10
/12
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
04
/15
06
/15
08
/15
10
/15
12
/15
02
/16
5-Year 3-Month
5 year-3 month spread
Cross Currency Swap Rates(Percent)
29
Source: CBRT.
Consumer loan rates remain at high levels, reflecting tightfinancial conditions.
Last Observation: March 04, 2016.
7
9
11
13
15
17
19
21
01
/10
04
/10
07
/10
10
/10
01
/11
04
/11
07
/11
10
/11
01
/12
04
/12
07
/12
10
/12
01
/13
04
/13
07
/13
10
/13
01
/14
04
/14
07
/14
10
/14
01
/15
04
/15
07
/15
10
/15
01
/16
Other
Housing
Automobile
Interest Rates on Consumer Loans(Percent)
30
Source: CBRT.
Total Loan Growth Rate(Year on Year Change, Percent)
Annual loan growth continues to decelerate in response to tightmonetary and financial conditions.
Last Observation: March 11, 2016.
Total loan is inclusive of all types of banks (deposit banks, participation banks, and development/investment banks) and credit cards.
Adjusted for exchange rate.
0
5
10
15
20
25
30
35
40
01
/11
03
/11
05
/11
07
/11
09
/11
11
/11
01
/12
03
/12
05
/12
07
/12
09
/12
11
/12
01
/13
03
/13
05
/13
07
/13
09
/13
11
/13
01
/14
03
/14
05
/14
07
/14
09
/14
11
/14
01
/15
03
/15
05
/15
07
/15
09
/15
11
/15
01
/16
03
/16
31
Source: CBRT.
Loan Growth Rates (Annual Percentage Change)
Commercial loans grow at a faster pace than consumer loans, contributing to price stability, financial stability, and the rebalancing process.
Last Observation: March 11, 2016.
Inclusive of loans extended by all types of banks (deposit banks,
Participation banks, and development/investment banks). FX adjusted.
0
5
10
15
20
25
30
35
40
45
50
0
5
10
15
20
25
30
35
40
45
50
01
10
03
10
05
10
07
10
09
10
11
10
01
11
03
11
05
11
07
11
09
11
11
11
01
12
03
12
05
12
07
12
09
12
11
12
01
13
03
13
05
13
07
13
09
13
11
13
01
14
03
14
05
14
07
14
09
14
11
14
01
15
03
15
05
15
07
15
09
15
11
15
01
16
03
16
Commercial
Consumer
32
Overview: Macroeconomic Outlook and Monetary Policy
• The favorable developments in the terms of trade and the moderatecourse of consumer loans contribute to the improvement in the currentaccount balance.
• Demand from the European Union economies support exports at anincreasing pace, despite elevated geopolitical risks in other exportmarkets.
• Recently, global volatility has eased to some extent. Moreover, the useof the policy instruments laid out in the roadmap published in August2015 reduced the need for a wide interest rate corridor.
• In this respect, the Committee decided to take a measured steptowards simplification.
• However, improvement in the underlying core inflation trend remainslimited, necessitating the maintenance of a tight liquidity stance.
THE ECONOMIC OUTLOOK AND MONETARY POLICY
March 25, 2016
