Central Bank of Turkey’s meeting with bank economists: “We love the BRSA!”
That statement is actually from Erdem Basci, when he was underlining how the banking regulator’s measures as well as the fiscal stance have been helpful to their policies during his monthly meeting with economists today. That love is apparent throughout the presentation, as several graphs are marked with the time of BRSA’s June policies, showing that BRSA’s policies really helped out. For example, the last graph on credit is a good example…
Since the CBT classifies me as a journalistus economicus, I am, like all journalists, a persona-non-grata at their monthly meeting with economists, but I continue to bring you all the intricacies of the meetings.
Anyway, Basci also praised fiscal policy, and RBS’s Tim Ash, who questioned how come the Governor was so positive on the fiscal stance, was directed to one of the boxes in the latest Inflation Report. According to that box, structural balance marginally improved in 2010, compared to 2009, but it was still much worse than in 2008. Besides, I would not consider such a small improvement improvement at all… Here are some other highlights of the meeting:
Inflation: Basci said they expect a 0.15 passthrough though import prices. With the lira having depreciated 25%, the impact on core inflation would be 25×0.15=3.75 percent, bringing end-year core inflation to around 7 percent. So far so good, but the Bank’s end-year inflation forecast (midpoint) is 6.9 percent, which means the Bank would be expecting roughly the same inflation from non-core items as well (the core I, non-core weight is about 50-50). This is OK, except that they expect a 7.5 percent food inflation. Sooooooo……
Growth: As before, the Bank expects 0 percent seasonally-adjusted quarterly growth in the second quarter. But they also said that they expect positive quarterly growth in the third and fourth quarters, which are already taken into account in their forecasts. This is OK, except that even with 0 quarterly growth for the remainder of the year, you end up with a growth of over 6 percent. So the CBT’s growth projections might not be too far off from the IMF’s forceast of 8.7 percent.
The Bank was criticized for concentrating too much on investment indicators like industrial production and capacity utilization at the expense of consumption. As a perennial cynic, I would simply say that that’s because those look better than consumption indicators:), but Hakan Kara, Head of the ResDep at the Bank, responded that that’s because those are more measurable. For getting a feel of consumption, he recommended the domestic orders component of the real sector confidence index, which is incidentally in the Bank’s presentation. I have no idea why this would be a better measure of consumption than, say, CNBC-e’s consumption indices (not confidence, actual consumption) or good old credit growth, but maybe I misunderstood, as all this is through my sources.
Current Account: The Bank expects the current account to be stable in the third quarter, before starting to improve in the fourth quarter, but I am not really sure if they are talking about seasonally adjusted monthly or 12-month rolling figures, as I don’t see significant improvement either way. Basci is insistent that the current account deficit as percent of GDP will end the year in a single-digit figure, but as Tim Ash noted, 9.9 percent could be considered single digit, if it will make Basci happy:)
Credit growth: Someone asked what the Bank was considering about credit growth now that the current account deficit is on its way to 10 9.9 percent. Basci said they are working on that at the moment, in line with the new Medium-Term Economic Program.As for latest developments, the Bank’s standard credit growth chart shows the figure this year same as 5-year average and lower than last year.
Boxes in the Inflation Report: Basci again emphasized the boxes in the Inflation Report; he is certainly very proud of them:) But joking aside, I liked them quite a bit and am thinking about writing on them for my weekly Hurriyet Daily News column. Basci specifically referred to the boxes on relative price of imports and the structural deficit in the meeting.
Corporate Sector Open Positions: Basci noted that they calculate open positions by comparing NPV of income flows with the current stock of debt, at least according to my sources. This seemed to me a bit odd, as the NPV methodology is heavily dependent on assumptions (like flow of income and discount rate), but as Basci noted, of the USD 90bn of open positions, most are not dangerous, as they are by exporters who earn FX as well. Besides, I would think the CBT’s calculation overestimates open positions in a significant way: Most company owners (I am talking about SMEs) have FX deposits although their companies have FX liablities, so it would make sense to include the FX retail deposits into the picture as well. Haluk Burumcekci used to do that when he was at Fortis, but I am not sure is he is still doing it over at his new home (EFG Securities).
Monetary Policy: Basci said that they would sharply increase the borrowing rate first to narrow the corridor, but if that was not enough, it would be followed by measured cuts in the policy rate. Now, they lost me here, as I am not sure how policy rate cuts would be a follow-up to the narrowing of the band, but again, I wasn’t there; I am just reporting what I heard from others.
Basci once again reiterated his statements from yesterday that the Bank would provide liquidity without hesitation if needed. As for other possible measures, which were also mentioned yesterday, Basci mentioned marginal reserve requirements, speed limits on bank borrowing and restrictions on leverage.
General Comment: As you can see, nothing radically new here. But from what I heard, much less was spent on talking about inflation than the current account deficit, credit, open positions and the like, as reflected in my notes above. That’s OK; those are the more important matters now, but just note that, if the Bank has to choose between any of these and inflation, the latter would probably not be the Bank’s priority…
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