The pursuit of transparency (2)
Fatih Özatay, PhD
20 November 2012
Yes, the Central Bank of Turkey has multiple objectives. Does it have any list of priorities? Do circumstances affect the priorities? The high current account deficit financed predominantly with short-term borrowings threatened Turkey’s financial stability. Counter measures eased the current account deficit to a certain extent. Yes, even the possibility of having the current level of current account deficit would give us the shivers in 2007 or 2005. But measures enabled a drop in the deficit, anyways. The level of current account deficit today is lower than what it was in 2011.
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Would Turkey get the rating upgrade anyway?
Fatih Özatay, PhD
17 November 2012
If unemployment rate were 10 or 10.5 percent today, would Fitch still upgrade Turkey to the investment level? Many developed countries have still been fighting with the consequences of the financial crisis. There is no doubt that chief among this is the hike in unemployment. IMF recently released the latest estimates for unemployment rate in 2012 in developed countries.
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The pursuit of transparency (1)
Fatih Özatay, PhD
15 November 2012
Although certain monetary policy models go out of date and are replaced by more fashionable ones, transparency was never abandoned as a principle. Looking at the last fifty years, it is clear that monetary policy practices in market economies have changed radically. For instance, there was a period when the mainstream monetary policy was that central banks declared in advance when and at what rate the liquidity will be increased. Then, circumstances changed; the “monetary control” approach was left and replaced by inflation targeting regime.
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What steps will the Central Bank take next?
Fatih Özatay, PhD
13 November 2012
The only factor that could possibly limit foreign exchange inflows towards Turkey and its peers is the risk of a fiscal cliff in the US. Here is a quote from the Central Bank’s (CB) latest Inflation Report, page 12 (similar statements can be seen in the Monetary Policy Committee Meeting Minutes, Article 15): “a resurge in short term capital inflows may slow down the rebalancing process through rapid credit growth and appreciation pressures on domestic currency. Should such a risk materialize, the CBRT may keep short-term rates at low levels while tightening through macroprudential tools such as reserve requirements. Moreover, the automatic stabilizer nature of the Reserve Option Mechanism will support financial stability.”
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Industrial output growth was no surprise
Fatih Özatay, PhD
10 November 2012
Economic recovery in the fourth quarter is probable; but it appears that the recovery, if any, will start at best in November. At times, when I say “I will address this issue in my next commentary” but an important development takes place, I fail to keep my word. On Thursday I promised to write about the possible exchange rate movements and the response of the Central Bank; but I have to postpone it. Because industrial output figures for September released on Thursday came as a “surprise” for some analysts.
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Obama, Fitch and the value of the lira
Fatih Özatay, PhD
08 November 2012
The investment grade will most certainly put a downwards pressure on exchange rate and an upwards pressure on the current account deficit. At the end of the latest commentary, I asked a question that was hard to answer. It was about the direction to which the exchange rate will head. Soon after came two related developments. First, only a couple of hours after I sent the piece to the paper, Fitch declared that Turkey’s rating was upgraded to investment level, making it easier for us to answer the question. Also, the US election was completed; indicating that one factor that obstructs the answer of the question remained the same.
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Exchange rate and headline inflation
Fatih Özatay, PhD
06 November 2012
The direction to which the headline inflation will heads relates basically to that exchange rate will head. Inflation statistics for October were no surprise: consumer price inflation (CPI) as well as the headline inflation that excludes the price changes for certain goods and services (the l indicator) decreased, with annual CPI at 7.8 percent and headline inflation at 6.1 percent currently. The downturn in headline inflation is particularly remarkable: it decreased by 2.1 percentage points since April.
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Spending on durables qualifies as consumption?
Fatih Özatay, PhD
03 November 2012
Some of the common macroeconomic models take the expenditure on durables as investment expenditures. Does the spending on durable goods such as refrigerators, washing machines and automobiles qualify as consumption or investment expenditures? The former, according to international standards; specifically categorized as “consumption of durables.”
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Indicators of dual character
Fatih Özatay, PhD
01 November 2012
The growth rate in the third quarter will most likely be below the unpleasing growth rate of the first half of the year. Foreign trade statistics for September were announced yesterday. Since December 2011, non-energy and non-gold imports have been decreasing year-on-year. The reason is quite obvious: growth rate has been significantly low and thus import requirement has been decreasing. The picture did not change in September, either: non-gold and non-energy exports decreased by 3.6 percent. The only difference is that the rate of decrease was smaller compared to previous months.
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October was not different
Fatih Özatay, PhD
30 October 2012
I don’t see any sign of a revival in industrial output in October compared to the third quarter. Capacity utilization ratio (CUR) in industrial sector for October was announced before the Bairam and the Republic Day. Probably because of the festive atmosphere, I came across positive assessments on the CUR figures, based on month-on-month comparison of seasonally adjusted data. Indeed, CUR ratio increased from 72.8 percent in September to 73.1 percent in October. Yet, due to the festive mood, the assessments overlooked one detail: the CUR for October was below the average CURs for the first and the second quarter, during which the economy grew at a rate below its potential (Table 1). If we are to look for a reason other than the festive mood surrounding the country, we can say that
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