A different perspective might be useful
Fatih Özatay, PhD
08 May 2012
After all, price stability (or anti-inflationary policies) is among the chief aims of the CBT. The last two inflation reports by the Central Bank of Turkey (CBT) have the same graphs as Figure 1. It appears that the message it delivers is of key importance for the CBT. The graph compares the value of the lira with ten emerging market currencies since October 2010, when the new monetary policy framework was launched. Emerging market economies referred to are Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, S. Africa, Indonesia, Korea and Colombia. Before the graphs, repots explain: “...(The CBT) also reacted to excessive exchange rate deviations from economic fundamentals on either side.” Right after this sentence, readers are guided to the figures.
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Implications were not on the game but on the audience
Fatih Özatay, PhD
03 May 2012
During the months ahead, we will witness the reflection of the inflation phenomenon onto the game. The CBT will keep the funding cost at high levels. No, the title does not refer to the match-fixing probe of the Turkish Football Federation that turned into an unresolved mess. I am referring to the monetary policy implemented during 2011, excluding December. If you wish, the period can be extended to cover the last weeks of 2010, as well.
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The freedom of taking sides
Fatih Özatay, PhD
01 May 2012
Tight fiscal policy can as well be expansionary under certain circumstances. This was the case with Turkey after the 2001 crisis. In some other cases, however, the exact opposite applies. The fiscal policy could have been tighter in 2011, a year when even official statements complained about the high current account deficit. When general government budget balance is adjusted for positive or negative revenue and expenditure impacts stemming from economic cycles, the “structural budget balance” is derived. This enables you to identify whether and to what extent fiscal policy was tightened or loosened year-on-year. Such analysis reveals that structural budget balance of Turkey has deteriorated slightly in 2011 compared to 2010. The second problem about the fiscal policy relates to the quality
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Higher interest rate, valuable lira
Fatih Özatay, PhD
28 April 2012
Funding cost will be determined by the changes about the exchange rate, and thus the international risk appetite. The Central Bank of Turkey (CBT) announced the second inflation report of 2012 with a press meeting. My impressions of the report and Governor Erdem Başçı’s presentation during the press meeting are as follows:
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Fighting against inflation back on the agenda?
Fatih Özatay, PhD
26 April 2012
The CBT started to tighten the monetary policy and prioritize anti-inflationary targets, which must be considered as steps in the right direction. By the time you are reading these lines, the Central Bank of Turkey (CBT) will have announced the second inflation report of the year. This report is of special importance given the current picture marked with high levels of CPI and a tight CBT monetary policy.
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Distributed profits
Fatih Özatay, PhD
24 April 2012
The level of distributed profits, which stood below $500 million before 2003 averages at $3 billion since 2008. Foreign direct investments (FDI) are the most desired form of foreign capital inflows. FDI includes foreign capital investments to buy a resident company, real estate or establish a new business. Some brings advanced-technology while some others work on medium-technology. Leaving real estate investments aside, Turkey’s FDI performance appear to have shown a leap after 2005, against the poor performance before then.
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Incentives, kidney bean and summer snowflake
Fatih Özatay, PhD
21 April 2012
When designing the new incentive system, it is crucial to devise a framework that improves productivity and technological advancement and promotes innovativeness. The incentive system issue can be addressed with a different perspective: Assume that you are to make an investment. The maximum cost of the product you will produce in your new facility should be no higher than the cost of rival products, under the assumption that there is no incentive mechanism in place. Otherwise, your new facility can survive only with artificial ventilation. The incentive system must not turn into an artificial ventilation device. It is evident that there is no economic benefit in artificially trying to create a competitive production process out of one that is originally uncompetitive. Useful in two aspec
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The ‘real policy rate’ will exceed 7 percent more frequently
Fatih Özatay, PhD
19 April 2012
As it is declared that additional monetary tightening might be implemented more frequently, ‘the real policy rate’ might exceed 7 percent. The Monetary Policy Committee (MPC) had a routine meeting yesterday. Here is the first important thing to quote from the decision: “...the MPC has decided to keep the short term interest rates constant at the following levels: a) One-week repo rate (the policy rate) at 5.75 percent...” All MPC decisions cite the one-week repo rate as the policy rate. The rate has been standing at 5.75 percent since 4 August 2011. In other key documents, the inflation report for instance, the Central Bank (CBT) stresses that the monetary policy has been tightened significantly since October. Given the rate that the CBT considers as the policy rate is constant since 4 Aug
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Who is to blame for the confusion?
Fatih Özatay, PhD
17 April 2012
It doesn’t matter if the CBT increases the one-week repo rate, which it calls the “policy rate” but actually is not. Central Bank’s Monetary Policy Committee (CBT - MPC) will hold a routine meeting tomorrow. The release issued after the MPC meetings refer to an interest rate called the “policy rate.” This corresponds to the interest on CBT lending to banks via one-week repo auctions. The rate has been standing at 5.75 percent since 4 August 2011. For some time now, there has been going around a meaningless discussion on whether or not the CBT should raise the rate.
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Is the system more transparent now?
Fatih Özatay, PhD
14 April 2012
The rate regarded by markets currently as the policy rate is the funding cost, not the one that the CBT calls as the policy rate. Before 29 November 2012, the Central Bank of Turkey (CBT) used to decide the bank lending rate during Monetary Policy Committee meetings. The rate was kept constant between two Committee meetings and if the Committee decided to preserve the rate, banks were able to enjoy the same interest rate on borrowing for a long period of time. This borrowing rate was the one regarded by markets and therefore was called the “policy rate.” For example, between 10 May 2010 and 28 November 2011, the policy rate equaled the one-week repo auctions rate. I said this was the case until 28 November 2011, but according to the CBT, this still is the policy rate.
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