Credit growth rate or interest rate? (2)
Fatih Özatay, PhD
15 December 2012
Encouraging different growth rates for different credit types might trigger investment expenditures. This would be the best option concerning the current account balance. I want to dig deeper into the question I asked the last time: Credit growth rate or interest rate? Last time I argued that given the current circumstances, credit movements had a more critical influence on growth. Also, I said that I will later elaborate on the question “was it the conventional interest rate policy alone that yielded results?”
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Credit growth rate or interest rate?
Fatih Özatay, PhD
13 December 2012
Interest rate cuts will not have much influence on growth rate unless the upper limit of credit growth rate is increased. Assume that Turkey wants to enhance growth rate. Which option do you think it must go with: to lower interest rate while keeping credit growth rate constant or to raise credit growth rate slightly?
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No surprises so far, but how about the fourth quarter?
Fatih Özatay, PhD
11 December 2012
Fourth quarter will not be substantially different from the third, which implies that fourth growth will bring slow growth rather than economic contraction. After all the speculations and rumors at this column, we finally learned the gross domestic product (GDP) figures for the third quarter. My speculation was that GDP growth in the third quarter will be lower than it was in the first and the second quarters. I was correct, but not precise: growth rate was even lower than what I forecasted: 1.6 percent against my forecast at 2.5 percent. Hence, in the first nine months of the year, Turkey’s GDP grew by 2.6 percent year-on-year.
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Abandoning the conventional: is it sustainable?
Fatih Özatay, PhD
08 December 2012
The CB’s new policy either did not contribute to the process or made a negligible contribution. The Central Bank of Turkey (CB) introduced a new monetary policy in October 2010. One pillar of the policy aimed to lower domestic credit growth by raising the reserves banks are obliged to keep at the CB. Required reserve ratio was raised starting in October 2010. The latest major interventions were in January and March 2011. The process ended with a limited raise that covered a few maturity types in April 2011. Before the introduction of the policy, credit growth rates had reached significantly high, particularly in the second and third quarters of 2010. For instance, average annual credit growth rate for lira loans was 34.9 percent in the third quarter of 2011. Nevertheless, the rates did not
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Even if the policy worked…
Fatih Özatay, PhD
06 December 2012
Credit growth rate started to decrease almost a year after the CB’s interventions and two quarters after the latest intervention
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Was it the required reserve ratio or another instrument?
Fatih Özatay, PhD
04 December 2012
Credit growth rate diminished substantially in the fourth quarter, when required reserve ratio was lowered on two different interventions. It is highlighted on all occasions that the Central Bank’s (CBT) interventions to reduce the credit growth rate brought the desired outcomes. Each and every CBT report states that reserve requirement for lira loans were increased starting with October 2010 in order to reduce the credit growth rate. The latest action to increase reserve requirement ratio was in April 2011. Starting with August 2011, international risk appetite weakened due to adverse developments in Europe. After this date the CB stopped increasing the requirements but decreased requirement ratios twice on October 6 and 27 instead.
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Getting a clear signal in all the noise
Fatih Özatay, PhD
29 November 2012
Abundance of data sometimes causes a lot of “noise.” And it is a difficult task to get a clear signal in the noise.
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The pursuit of transparency (4)
Fatih Özatay, PhD
27 November 2012
We don’t know the CBT’s estimations of credit growth rate under different scenarios on external conditions. Inflation reports are among the key communication tools of the Central Bank of Turkey (CBT). Here is a quote from the second one for 2012: “Having achieved the desired outcomes with respect to alleviating macro financial risks, monetary policy has focused on maintaining price stability as of October 2011” (page 3).
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The pursuit of transparency (3)
Fatih Özatay, PhD
24 November 2012
The CBT can fulfill the authorities granted by the relevant law more easily if it helps economic actors shape healthy inflation and interest rate expectations. The Central Bank of Turkey (CBT) no longer has a single objective. For instance, the CBT Governor Erdem Başçı said the other day that the Bank will intervene if the real value of the lira (that is the real exchange rate) reaches a certain level. The CBT has stressed several times that they aimed the credit growth rate at a level around 15 percent. Moreover, the CBT introduced a series of measures between the late 2010 and August 2011 in order to lower the current account deficit, explicitly stating this objective. From time to time, the Bank declared that it may change its policy stance due to concerns related to growth performance.
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Lessons Turkey can take from Japan
Fatih Özatay, PhD
22 November 2012
With its production structure driven by external demand, the output of the automotive sector decreased inevitably. Japan’s exports in the first ten months of the year decreased by 2.3 percent compared to the same period in 2011. Experts raised two main reasons: first was the relative drop in Europe’s import demand due to the challenging economic circumstances. Second was the relative slowdown in China’s growth as well as the escalating tension between Japan and China. In October, Japan’s exports to the Eurozone and to China decreased by 20.1 percent and 11.6 percent, respectively.
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