17 March 2011
If the CBT had done the statement on Tuesday right after the debates had emerged, it would strengthen its prestige. I had omitted the last two paragraphs of my commentary on Tuesday to use it in today's commentary due to constraints about space. My commentary on Tuesday ended as follows: "Now it is time to examine the declarations of the CBT about the steps taken to discourage short term capital inflows and the dissuasiveness of the decisions. I will deal with this in the next commentary..." I was talking about the Central Bank of Turkey (CBT). And the part I had to omit (in brief): "...The rest of the decisions were aimed at enabling a healthier method of finance for the current account deficit that currently stands at high levels. The Bank has initiated a number of measures supposed to d
Breaking the routine, dilemma and failing to justify
15 March 2011
If the BRSA steps in and introduces regulations that will discourage extending credits using short term funds, the CBT's chances to succeed with the new policy framework will be increased. I have written a number of commentaries on the latest decisions of the Central Bank of Turkey (CBT). I want to wrap up my comments so far. Today I want to stress three important points about the series of decisions of the CBT to increase the required reserve ratio with the aim to slowdown the rapid rise in the credit volume.
What do the credit data tell?
12 March 2011
Credit supply can be slowed down should the required reserve ratio is increased "sufficiently". The fact that such slowdown is not yet observed as shown above does not change the reality. The Central Bank of Turkey (CBT) had increased the required reserve ratio for TL deposits with four consecutive decisions, first of which was made in September 23. The declarations of the CBT reveal that the aim of the actions was to slowdown the rapid increase in the credit volume by raising the amount of funds banks are obliged to keep at the CBT. The CBT has highlighted severally that this was required for the sake of financial stability.
How can the Central Bank overcome the “dilemma”?
10 March 2011
While withdrawal of 21.6 billion liras was targeted, the CBT injected 14.7 billion liras to the market. The Central Bank of Turkey (CBT) increased the required reserve ratio not only by the decision taken on January 24, 2011. Decisions to this end were taken occasionally since April 2010. The first one was about the required reserve ratio imposed on foreign exchange denominated deposits. That imposed on the lira deposits was raised for all maturities for the first time in September 23, 2010. Later on November 12, 2010 the ratio was raised again for all maturities. It was declared that the impact of these two decisions would be a net exit of money of 4.2 billion liras.
On the Central Bank’s dilemma
08 March 2011
The CBT on the one hand reduced the amount of funds banks can extend in form of credits and on the other hand provided one-week maturity funds to them in order to maintain the weekly repurchase rate at the identified level.
Inflation rate: heads to where?
05 March 2011
Together with the rise in crude oil and food prices, the possibility of an upwards movement in inflation rate becomes more visible. Consumer price indices have been issued since January 1964 though under different names. I broadly reviewed the year-on-year change in the price index for each month: 4.2 percent inflation rate announced for February 2011 is the lowest inflation rate since mid-1970s.
Destabilizing interest expenditures
03 March 2011
Turkey has a higher interest expenditure/GDP ratio than all European countries but Greece. I am now obsessed with the 'stability' issue; I have to write stably on stability. Or I might harm the stability, God forbid. The concept "stability" has a dual character: there is "good stability" and "bad stability". Interestingly, the "things" stability evokes in our minds is not at all stable. Therefore, with a different perspective stability has no character.
An odd form of stability
01 March 2011
Favorable economic developments in the recent period disguise an unpleasant form of stability. Gaddafi is in power for more than 40 years; and he is about to be overthrown. Hosni Mobarak stayed in power for about thirty years and Zeynel Abidin Bin Ali for more than 20 years. Compared to democratic countries, we can talk about an outstanding persistence in management: 'management stability'.
Taking advantage of the 2001 crisis (2)
26 February 2011
'Tenth anniversary of the 2001 crisis' celebrations must not be exaggerated or used to disrepute the ruling government back then. It is evidently good the recall the 2001 crisis to emphasize how important macroeconomic stability is. However when doing this we must also note that stability alone will not move Turkey to the first league. Recalling and remembering the crisis will have limited impact unless we keep in mind that the income gap between developed countries and Turkey did not close down even slightly over the last three decades and therefore that Turkey ran around in circles in this respect.
Taking advantage of the 2001 crisis
24 February 2011
The biggest mistake made was the failure to advance upon the banking sector the major weaknesses of which became to be understood much later. Which crisis was deeper? The 2001 crisis or the 2008-2009 crisis? To answer this question, assessing two indicators will be sufficient: the change in unemployment rate and in gross domestic product (GDP).