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    You only die once, but...
    Fatih Özatay, PhD 21 May 2013
    You only die once. The danger of this policy is that it might temporarily erode Turkey’s competitiveness. Low interest rate policy and generous liquidity injections of developed countries put developing countries including Turkey into big trouble. Turkey also has a special condition: it was upgraded to investment level by two different rating agencies, Fitch and Moody’s, which accelerated foreign fund inflows. This movement might be reversed on two conditions: first, if a crisis similar to that in Cyprus is recurs in Europe, fund inflows come to a halt. In fact, such a development might even lead to a net capital outflow. Fund inflows might be affected negatively also if the turmoil in Syria increasingly bounces to Turkey’s territories. [More]
    Does the CB need an alternative policy?
    Fatih Özatay, PhD 18 May 2013
    A second rating agency upgrading Turkey’s rating is a positive development concerning both the cost and volume of borrowing. Two positive developments we heard this week: Turkey paid off its debt to the IMF and Moody’s upgraded Turkey to the investment grade. Following Fitch, a second rating agency upgrading Turkey’s rating is a positive development concerning both the cost and volume of borrowing. Developed countries carry on with the low interest rate policies and quantitative easing. Latest, Japan joined the team. Over the last months, Turkey enjoyed high volumes of foreign capital inflow. The rating upgrade implies that inflows might accelerate in the period ahead, provided that the international risk appetite is not reversed. [More]
    Disequilibrium should not become the norm
    Fatih Özatay, PhD 16 May 2013
    In a country like Turkey, which has to choose between low growth and high current account deficit; what does it mean if interest rates are lower than inflation rate? The other day I chatted with an economist from Georgia. He had his PhD in the US and has been working there for a long time now. He worked in Georgia for a couple of years too. He complained that many economists in his country stuck to simplistic paradigms on many issues. Life was quite simple for them, he complained: leave it all to the market, cut tax rates and reduce the share of the state in the economy etc. [More]
    Perhaps avoiding multi-objective policies should be the objective
    Fatih Özatay, PhD 14 May 2013
    Short-term capital inflows have gradually increased, but exchange rate is not volatile. Real exchange rate has reached 121. Central banks that implement inflation targeting regimes enjoy a certain advantage. They have only one target to meet: the inflation target. But they focus not only on inflation, but on at least two indicators. On the one hand they try to ensure that inflation is close to the target and on the other hand they try to prevent any possible divergence of growth rate from the potential. Fulfilling the inflation target alone is not enough. They have to keep growth rate in check and reduce the interest rate if it is below the potential, for instance. [More]
    A complicated situation
    Fatih Özatay, PhD 09 May 2013
    We are faced with a complicated situation. Evidently, the critical challenge is that there are several monetary policy targets. Given the Central Bank’s (CB) discourse and messages in the last couple of years, members will probably have a hard time in the next Monetary Policy Committee meeting. Taking the statements of the CB into account, there are several reasons both to cut and to not cut or even to increase interest rates. [More]
    Monetary policy and the brown pill
    Fatih Özatay, PhD 07 May 2013
    Not only does the savings rate go downhill; international comparisons validate the underperformance. While we were almost convinced that everything was fine, I am afraid that new risks for the future are piling up. First is the high possibility of having deposit rates below inflation while domestic savings rate has been crashing down. Second is about the reserve options mechanism, ROM, which allows banks to keep reserve requirements in FX. I think there is a similar mentality underlying the ROM and the latest airport tender being carried out in Euro terms. Though the two might seem to be irrelevant at first glance, both aim to encourage people to keep and borrow FX rather than lira. Moreover, the mechanism is self-fulfilling: the incentive requisites such actions. [More]
    Positive, as expected and a question mark
    Fatih Özatay, PhD 04 May 2013
    Taking into account the capacity utilization and real sector confidence figures for April, it is doubtful whether the recovery implied by import growth will be sustainable. I would like to make a brief assessment of the latest figures. As released yesterday, annual CPI inflation decreased remarkably from 7.3 percent in March to 6.1 percent in April. Similarly, all core inflation indicators decreased: headline inflation to which the Central Bank attaches special importance eased by 0.4 points month-on-month and decreased to 5.4 percent. [More]
    The TEPAV Financial Stress Index (2)
    Fatih Özatay, PhD 30 April 2013
    The TEPAV Financial Stress Index was designed to predicate the risk of economic contraction before GDP figures are released. Last week I talked about a new index TEPAV developed. The TEPAV Financial Stress Index aims to predicate the risk of economic contraction before GDP figures are released. The Index cannot foresee each and every incidence of economic contraction, though. It is indicative of the risk of contraction on the basis of financial factors. [More]
    US debt ceiling
    Fatih Özatay, PhD 27 April 2013
    It is estimated that the Treasury will need a new raise in the limit by 19 May 2013, which means that the Republican and Democratic parties will have to reconcile once again. Soon a well-known problem will come back to the fore. The acquaintance dates back to 2011 when the entire world first mingled with the US Treasury’s debt ceiling issue. The US has legislative restrictions on debt since 1917. The ceiling was raised seventy times since then. In 2 August 2011, it was realized that the Treasury’s debt will hit the ceiling. This was a problem not only for the US Treasury: the head trauma was expected to affect the entire world. The ceiling, if not raised, would hinder budget payments, especially pensions, social security allowances and interest on borrowing. The US economy would in a sense [More]
    April capacity utilization and confidence figures are not pleasing
    Fatih Özatay, PhD 25 April 2013
    In April, CUR decreased year-on-year by 1.5 percent, that is, at a rate larger than in February and March. Yesterday two important data which are indicative of growth performance were released. 2012 growth was remarkably weak, at 2.2 percent. Growth rates decreased quarter on quarter throughout the year. The fourth quarter had the weakest growth figure.  Given the 2013 growth target of 4 percent and the slight increase in unemployment, the billion dollar question in everyone’s mind is whether or not recovery has begun. [More]