new how do capital flows challenge monetary policy in … · 2014. 9. 24. · 1 october, 2011...
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1
October, 2011
Warsaw
HOW DO CAPITAL FLOWS CHALLENGE
MONETARY POLICY IN CESEE?
Erdem Başçı
Governor
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Contents
2
I. Global Monetary Expansion
II. Price Stability
III. Financial Stability
IV. External Balance
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I. Global Monetary Expansion
II. Price Stability
III. Financial Stability
IV. External Balance
3
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Large-Scale Asset Purchases
1. Large-Scale Asset Purchase Programs (LSAPP): FED and BoE
2. Unprogrammed Large-Scale Asset Purchases (ULSAP):
ECB, BoJ, SNB
Global Monetary Expansion
4
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0
200
400
600
800
1000
1200
1400
1600
1800
0
200
400
600
800
1000
1200
1400
1600
1800
Official Liquidity (US)
Source: FED, CBRT.
(Billion USD)
Excess Reserves
Currency in Circulation
5
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0
50
100
150
200
250
300
350
400
450
500
500
550
600
650
700
750
800
850
900
Official Liquidity (Eurozone)
Source: ECB, CBRT. *Excess Reserves=ECB Balance Sheet Deposit Facility + Fixed Term Deposits
Excess Reserves* (RHS)
Currency in Circulation
(Billion Euro)
6
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-20
-10
0
10
20
30
40
50
60
-20
-10
0
10
20
30
40
50
60
Official Liquidity (Turkey)
Source: CBRT. * Excess Reserves =Sterilization through ON Borrowing + Banking Sector Free Deposit - Banking Sector Required Reserves
(Billion TL)
7
Excess Reserves*
Currency in Circulation
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Source: TurkStat, CBRT.
* Reported M2 excludes foreign currency deposits.
Private Liquidity (Turkey)
0
2
4
6
8
10
12
14
16
18 ∆M2*
GDP
(Percent)
8
Annual Change in Money Supply
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I. Global Monetary Expansion
II. Price Stability
III. Financial Stability
IV. External Balance
9
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Employment
Source: WEO, Turkstat, CBRT. *Difference of natural logarithms.
Annual Average Employment Growth* (2007-2010)
-5
-4
-3
-2
-1
0
1
2
3
4
5
-5
-4
-3
-2
-1
0
1
2
3
4
5
(Percent)
10
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Potential Output: Capital and Labor
50
60
70
80
90
100
110
120
130
Labor market participation rate* (percent)
Source: TURKSTAT, CBRT.
*Seasonally adjusted.
Capital Stock (constant prices, natural logarithm, 2008=100)
Source: TURKSTAT, CBRT.
Trend
Capital Stock
11
45
46
47
48
49
50
51
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The Policy Mix
Policy Dimension Current Stance
1. Policy Rate Accommodative
2. Liquidity Policy Non-Accommodative
3. Financial Sector Policy Non-Accommodative
Net Policy Stance Non-Accommodative
12
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The Policy Mix
CBRT Policy Rate TL Reserve Requirement Ratios (RRR)
Source: CBRT.
0
5
10
15
20
25O/N Lending - Borrowing Interest Rate Corridor
1- week Repo Rate
Adoption of 1-week repo rate as the policy rate
Source: CBRT.
13
0
2
4
6
8
10
12
14
16
18
The range of RRR
Weighted average RRR
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16,3
16,4
16,5
16,6
16,7
16,8
16,9
17
17,1
17,2
17,3
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gross Domestic Product
Actual and Trend GDP (natural logarithm, seasonally adjusted)
14
GDP
Trend
Source: CBRT.
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0
5
10
15
20
25
30
0
5
10
15
20
25
30
Inflation in Turkey and EMs
Turkey
EM Average
Source: CBRT and Bloomberg. Average of EM countries: Brazil, Mexico, Czech Rep., Hungary, Poland, S. Africa, China, India, Russia. 15
(Percent)
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Inflation Forecasts and Realizations
Source: CBRT. * Shaded region indicates the 70 percent confidence interval for the forecast.
16
0
2
4
6
8
10
12
Perc
ent
Forecast Range* Uncertainty Band Actual Inflation Year-End Inflation Targets
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I. Global Monetary Expansion
II. Price Stability
III. Financial Stability
IV. External Balance
17
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Global monetary expansion (LSAPP and ULSAP) fuels inflows to
emerging economies with a tendency towards;
a) More debt, less equity,
b) More foreign currency, less domestic currency,
c) More short term, less long term.
The Problem
18
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In contrast, emerging economies should provide incentives for
financial inflows with a tendency towards;
a) More equity, less debt,
b) More domestic currency, less foreign currency,
c) More long term, less short term.
The Solution
19
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-20
-10
0
10
20
30
40
50
60
70
80
Portfolio and Short-Term* FDI and Long Term Current Account Deficit
Main Sources of Current Account Deficit Finance (12-months Cumulative, Billion USD)
Source: CBRT. *Short-term capital movements consist of banking and real sector short term net borrowing and deposits in banks.
Composition of Capital Inflows
CBRT Measures
20
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Source: CBRT.
Note: Period covers from November 2010 to September 2011.
Maturity Extension
Percentage Change in Turkish Lira Deposits by Maturity after Reserve Requirement Measures
(Percent)
21
-100
-50
0
50
100
150
200
250
Up to 1 month 1-3 months 3-6 months 6 months-1 year 1 year and more
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-40
-20
0
20
40
60
80
100
120
140
-40
-20
0
20
40
60
80
100
120
140
Jan
Feb
Mar
Ap
r
May Jun
Jul
Au
g
Sep
t
Oct
No
v
Dec
Credit De-dollarization
Foreign Currency Loan Growth (Annualized, percent, 20 days moving averages)
Source: CBRT.
22
2011
2006-2010 Average
2010
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Credit Growth
Total Loans*
(monthly change, percent)
Source: CBRT.
*Adjusted for the exchange rate effect.
** Monthly percentage change in credit volume as of 11 October,2011. 23
-2
-1
0
1
2
3
4
5
-2
-1
0
1
2
3
4
5
Average of the Previous 5 Years Last Period Difference
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I. Global Monetary Expansion
II. Price Stability
III. Financial Stability
IV. External Balance
24
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0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
2010 2006-2010 Average 2011
Consumer Loans (Annualized growth, percent, 4 weeks moving average)
Growth in Consumer Credit
Source: CBRT
BRSA Measures
RRR Hikes
25
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0,9
1
1,1
1,2
1,3
1,4
Average of EM countries: Brazil, Chile, Czech Republic, Hungary, Mexico, Poland, S. Africa, Indonesia, South Korea and Colombia. Last observation: October 14, 2011. Source: CBRT and Bloomberg.
TL
EM Average
TL and Other EM Currencies Against USD* (11 Nov. 2010=1)
Currency
De
pre
cia
tio
n
Ap
pre
cia
tion
CBRT Measures
26
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80
90
100
110
120
130
140
150CPI Based Real Effective Exchange Rate (2003=100)
CPI (Developing Countries) Based Real Effective Exchange Rate
CPI (Developed Countries) Based Real Effective Exchange Rate
- - - - Provisional
REER
Source: CBRT.
CPI Based Real Effective Exchange Rate (2003=100)
27
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Exchange Rates
23.08.2011 – 21.10.2011 01.11.2010 – 22.08.2011
Source: Bloomberg, CBRT. Note: Positive change means depreciation against US dollar.
Percentage Changes in Exchange Rates
28
-30
-20
-10
0
10
20
30
-5
0
5
10
15
20
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Source: Bloomberg, CBRT. Emerging economies include Brazil, Chile, Colombia, Mexico, Poland, Hungary, Czech R., S.Africa, Indonesia, Korea and Turkey
Exchange Rate Volatility
29
5
10
15
20
25
30
Turkey Emerging Economies
Exchange Rate Volatility (percent, implied volatility for the next 12 months)
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Current Account Balance (Seasonally Adjusted, Million USD)
Source: TURKSTAT, CBRT. Note: September data is forecast.
External Adjustment
30
-9000
-7000
-5000
-3000
-1000
1000
3000
Current Account (Excluding Energy) Current Account
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31
October, 2011
Warsaw
HOW DO CAPITAL FLOWS CHALLENGE
MONETARY POLICY IN CESEE?
Erdem Başçı
Governor