Policy Note/Sarp Kalkan Growth Record Albeit the “Tightened” Monetary Policy

"Turkey has demonstrated a noteworthy growth performance in a period when the ongoing debt crisis in Europe turned first into a banking crisis and then into a political crisis. Gross Domestic Product (GDP) grew year-on-year by 8.2 percent, the second highest growth following China.

Turkey’s success becomes more evident when the growth performance during the first nine months of 2011 is addressed. Turkey is the growth champion of the world for the first nine months of the year. In the first three quarters of 2011, the Turkish economy grew by 9.6 percent compared to the same period in 2010. China and India, also known as the growth engines of the global economy, followed Turkey. The worst performing economies were troubled European countries, Greece and Portugal to begin with, and Japan, which is still struggling to dress the wounds of the latest earthquake.

In fact, this rapid growth performance was a big surprise for many who closely monitor markets. Remarks by the officials of the Central Bank of Turkey (CBT) that monetary policy was tightened amid the rising risks associated with current account deficit had an important role on this surprise effect. Then, how could Turkey achieve such an impressive growth performance albeit the monetary tightening?"