Story of the interest on required reserves
Fatih Özatay, PhD
27 September 2010
The most striking one of the decisions the CBRT (Central Bank of the Republic of Turkey) announced the last Thursday was the abolition of the interest on required reserves in lira terms. Let me put a small note for those who are distant to the issue:
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Why should intervening in foreign exchange be the responsibility of the Central Bank alone?
Fatih Özatay, PhD
26 September 2010
I have postponed and avoided writing about this issue for long. But since I have been talking about exchange rate issue and as the issue was featured on the morning news of business TV channels, it is the right time to talk about it. It is about the intervention in the foreign exchange market in Japan. You can find a number of featured stories on the Internet on this intervention as well as the earlier ones. I will quote from a banks news report dated September 15: "Japanese Ministry of Finance have intervened in the FX market for the first time in six years. Minister of Finance Noda confirmed the intervention and stated that they have also communicated with authorities overseas... It is declared that the Minister of Finance has sold one trillion yens... Shirakawa, President of Bank of Jap
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How much the interest rate must be cut to increase the exchange rate?
Fatih Özatay, PhD
23 September 2010
My last commentary ended with the following sentence: What is behind this 'terrifying' purchase-sale traffic in the exchange rate market if it is not the need of foreign exchange purchase and sales required for exports and imports? Since international capital movements are at significant amounts, the primary candidate for the answer goes like this: the difference between the expected returns on domestic bonds (of the country to which capital flows) and the expected returns on the bonds of country where capital flows out of. Largest the difference, expected FX inflow to the country (domestic) increases.
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What is behind the FX trade?
Fatih Özatay, PhD
20 September 2010
I started to a series on exchange rate; but it was interrupted by growth figures and the recent decision on interest rate. A meeting by exporters and the CBRT (Central Bank of the Republic of Turkey) and recommendation of raising FX reserves to $100 billion are on the agenda. These are closely related with the series I am writing, so I will continue from where I stopped. Let me first summarize the first commentary of the series.
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Should not we first read what we tend to interpret?
Fatih Özatay, PhD
19 September 2010
The recent interest rate decision was generally misinterpreted. It was said that the CBRT (Central Bank of Republic of Turkey) cut interest rates and comments that might damage the prestige of the Bank was made. However the CBRT did not change the policy interest rate. False and wrong comments were made upon the CBRT's cutting bank borrowing rate.
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First half of the year is OK; what about the second half?
Fatih Özatay, PhD
16 September 2010
Two important figures were recently announced: GDP in the second quarter of the year and unemployment rate for June. Let me start with emphasizing two favorable developments with respect to the GDP. First, GDP net of seasonal and calendar effect increased by 3.7% quarter-on-quarter. This is a significant increase. Second, this impressive quarter-on-quarter growth rate enabled GDP to surpass the pre-crisis level, which was achieved in the first quarter of 2008.
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Meaningless fuss
Fatih Özatay, PhD
14 September 2010
It is exporters in general who mention a certain level for exchange rate. This is 'understandable' considering only the exports. After all, exchange rate affects the profitability of exporters. Lower the exchange rate, lower the profits.
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Do those who talk through their hat know?
Fatih Özatay, PhD
12 September 2010
Let me begin with a quotation from an academic research published in 1995: "There is remarkably little evidence that macroeconomic variables have consistent strong effects on floating exchange rates, except during extraordinary circumstances such as hyperinflations. Such negative findings have led the profession to a certain degree of pessimism vis-à-vis exchange rate research."
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Inertia of economic policy
Fatih Özatay, PhD
06 September 2010
If you are of belief that the market mechanism should not be intervened in and that the economy will reach the equilibrium in its own dynamics, you do not have to worry about the recent negative signals about economic growth. But we cannot say the opposite.
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Another duty loss?
Fatih Özatay, PhD
05 September 2010
I would like to start with the commentary of Hasan Ersel published in Referans daily on September 1st. He examines by various angles the decision that cuts the interest on the credit extended to artisans through Halk Bank from 13 to 10 percent as of September 1 and that shares divides the burden of the cut equally between the Treasury and the beneficiary of credit.
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