Another Rabbit (or Two) Out of the Central Bank of Turkey’s Hat
The Central Bank of Turkey, or CBT, kept both the policy rate and required reserve ratios, or RRRs, constant at today’s rate-setting meeting. This was totally expected, but some analysts were expecting the Bank to turn more hawkish to prepare the market for rate hikes, or at least more RRR increases. But the one-pager released with the rate decision is as dovish as ever, as you can read in the Citi research note.
More interestingly, there are a couple of new kids on the block. That is, the Bank has pulled two new rabbits out of its monetary policy stance justification hat:
First, as expected, the Bank is referring to the banking regulator’s recent measures: The recent measures taken by the Banking Regulation and Supervision Agency will contribute to the rebalancing of domestic and external demand. No surprises here.
The Bank is also saying that while employment conditions continue to improve with unemployment rates back to the pre-crisis levels, unit labor costs decline due to strong productivity gains. Let’s see if this is the case:
The data is up to the first quarter and it is nominal, rather than real, but still… Productivity data is available only until the end of 2010.
Also, the other reasons justifying the policy stance remain: Domestic demand is moderating, which, combined with weak external demand, keeps capacity utilization rate low, and that the current account deficit should begin improving from last quarter onwards, as the Bank’s measures begin to work. I have really had enough of the domestic demand argument, but the pace of the current account deficit will slow in the last quarter even if the Bank’s measures don’t work, because of base year effects:
You know what: Maybe it is the heat, maybe it is my continuous coughing, maybe it is this Jordan report I am writing that seems never to end, but I am really really really sick of being taken for an idiot by the Central Bank of Turkey!…
BTW, the political development that came around the same time as the rates decision really stole the show, as Turkey may be heading for a new election in the fall. I’ll have a post on that in the next couple of hours or so, so keep watching:)…
6 Responses to “Another Rabbit (or Two) Out of the Central Bank of Turkey’s Hat”
L_G • June 23rd, 2011 at 6:28 pm
The Central Bank is not doing what its mandate requires. They stick to a policy which has failed, because it
1) increases inflation
2) may trigger a financial crisis if the money allowing the current account deficit vanishes
3) is not effective in narrowing the CAD.
It is hard to understand why they do it. Out of stubbornness, maybe.
edeliveli • June 23rd, 2011 at 8:12 pm
Maybe, they need to learn that "denial" is not only a river running through Egypt:)
L_G • June 23rd, 2011 at 8:45 pm
It took me some time to understand the joke, but I appreciate it nevertheless 
.
edeliveli • June 23rd, 2011 at 9:19 pm
i know, I know…. My jokes are usually bad, but the wordplay ones are the worst:) Anyway, I think I should use it in next week's column. I was going to write about Turkey's trade with MENA countries in turmoil, but I just can't pass such a title:)
L_G • June 23rd, 2011 at 9:59 pm
BTW what is the political development you mentioned? I see no clues on Hürriyet.
edeliveli • June 23rd, 2011 at 10:32 pm
OK, will post something on it right away, check the blog soon…
