Well Done, Central Bank of Turkey

Author: Emre Deliveli  ·  July 24th, 2011  ·  549http%3A%2F%2Fwww.economonitor.com%2Femredeliveli%2F2011%2F07%2F24%2Fwell-done-central-bank-of-turkey%2FWell+Done%2C+Central+Bank+of+Turkey2011-07-24+20%3A33%3A48Emre+Delivelihttp%3A%2F%2Fwww.economonitor.com%2Femredeliveli%2F%3Fp%3D549 › Share This Print

As loyal readers would know, I am often critical of the Central Bank of Turkey’s communication strategy (or rather lack of it). I especially get pissed off when they make very strong remarks without providing any solid evidence whatsoever. For example, they have recently argued that the inventory cycle will prevent overheating or claimed that firms will increase prices less than before because there is more competition now.

It is not good practice when anyone makes bold claims without solid evidence to back them, as my friends at Yapi Kredi, or YKB, economists often note in their criticisms of the overheating camp. They are right, but the problem is much more severe when the Central Bank is making such claims rather than a market economist.

So when CBT Governor Erdem Basci started talking about the relationship between financial stability and unemployment during Friday’s seminar, I began to feel disappointed again. I had seen his graphs linking CDS spreads and unemployment in his earlier presentations, and I knew it was from an upcoming paper with two Central bank economists, one of whom is a good friend, but still, I had serious reservations, which I addressed very briefly while live-blogging during his presentation.

But as soon as Basci’s presentation ended, the working paper was on the Central Bank website. I am not sure if this was a coincidence, but if it is not, I applaud the Bank for once for great communication. That’s what I am expecting every time when the Governor makes a bold claim. Incidentally, the Bank also published a booklet on the evolution of their communication strategy on Friday (in Turkish)

And as or my general impressions of the Governor’s speech: You can see details at my attempt at live-blogging, but in general, I was impressed with the presentation. The attitude was one of restrained confidence, i.e. not mindless panic like AKP topbrass Bulent Gedikli’s when he urged consumers not to spend, or ignorant overconfidence like Economy Minister Zafer Caglayan’s when he was saying that the current account represents no problem. Basci was basically saying that they were watching the developments carefully and were ready to act when needed.

One think I didn’t like in the presentation was the reference to the government program emphasizing financial stability. I see the Governor’s point of view; he means to say that the Government thinks the same way about financial stability, but still an independent Central Bank should not quote government programs for whatever the reason. But in general, it was a good speech, so I was disappointed when his remarks on the need (not for Turkey, general-speaking) to reduce open FX positions caused a big splash in markets. The media accused him for rattling markets, which may be true from a causality point of view, but if you begin to ask why markets have become so jittery of late, I wouldn’t lay the blame on Basci’s remarks- more details at tomorrow’s column, which will be up on the Daily News web site in half an hour.

And speaking of the Central Bank, I should add that it won’t be a surprise if the Bank decreases, or even eliminates altogether, its FX auctions after the lira downfall of last week. But I think it is still to early for other measures, such as the narrowing of the interest rate corridor the Bank was mentioning in the latest MPC one-pager.

As for the other presentations in the seminar: Walter Enders, author of my time series Bible, presented his paper on commodity prices. Unfortunately, I could only make it to the end of the presentation because of heavy road construction on the road from Marmaris to Denizli. And Mark Lewis, IMF’ Resident Rep. discussed global financial stability, another really good presentation with really cool graphs, which got lost when he was misquoted as saying that risks to Turkish financial stability had increased- again, more details in tomorrow’s column.