external impact of us monetary policy on emerging markets...supporting turkish lira core liabilities...

External Impact of US Monetary Policy on Emerging Markets

Central Banking Seminar, The Implications of Divergent Monetary Policies

Federal Reserve Bank of New York

October 07, 2015

Heightened Uncertainties

The global economy and financial markets currently face heightened uncertainties:

1) growth prospects of different regions and economies

2) impact of the prospective normalization of

global monetary policies

3) volatile commodity prices

2

3

Source: Bloomberg, CBRT Calculations (*) Emerging markets : Brazil, India, South Africa, Indonesia, Mexico, Poland, Hungary and Turkey Bloomberg Capital Inflow Index: 0.1*SPGSCI Index+0.3* MSCIEM Index+0.3*EMBI Index+0.3*FX CarryTrade Index

Capital Flow Proxy

Portfolio Outflows from Emerging Markets

Last Observation: September 29, 2015.

100

110

120

130

140

150

160

170

180

190

200

01

/10

04

/10

08

/10

12

/10

03

/11

07

/11

10

/11

02

/12

06

/12

09

/12

01

/13

05

/13

08

/13

12

/13

03

/14

07

/14

11

/14

02

/15

06

/15

09

/15

EM Capital Flows Index

4

Source: CBRT

Change in Nonresidents Bond and Equity Holdings (US$ million)

Turkey has mainly experienced bond outflows.

Last Observation: September 2015.

-15000

-10000

-5000

0

5000

10000

15000

20000

25000

30000

01

/11

04

/11

07

/11

10

/11

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

Nonresidents Equity Holdings in TRY, 52W Chg

Nonresidents Bond Holdings in TRY, 52W Chg

5

Source: Bloomberg

Emerging Economies: Turkey, South Africa, Brazil, Indonesia, Mexico, Colombia,, Poland, Czech Republic, Romania

Currency Volatility (3M Implied Volatility)

Volatility of EM currencies has recently increased.


0

5

10

15

20

25

30

01

/11

04

/11

07

/11

10

/11

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

Emerging Markets

Turkey

6

Source: Bloomberg.

(*) Emerging markets : Brazil, India, South Africa, Indonesia, Chile, Colombia, Mexico, Poland, Czech Republic, Romania and Turkey

EM 10 Year Bond Yields (3M Rolling Average of Absolute Daily Changes)

EM sovereign and local currency bond yields have been relatively stable.


0

2

4

6

8

10

06

/10

11

/10

04

/11

09

/11

03

/12

08

/12

01

/13

06

/13

12

/13

05

/14

10

/14

03

/15

09

/15

bps

Hard Currency Bond Local Currency Bond

7

Source: Bloomberg

Inflation Rates in EMEs

Inflation rates in EMEs have been diverging.


-5

0

5

10

15

20

01

/10

05

/10

09

/10

01

/11

05

/11

09

/11

01

/12

05

/12

09

/12

01

/13

05

/13

09

/13

01

/14

05

/14

09

/14

01

/15

05

/15

09

/15

Indonesia Hungary Russia South Africa Turkey Brazil Mexico

8

Source: Bloomberg

Real Policy (Effective) Rates in EMEs

Real policy rates in EMEs have been diverging.

Last Observation: August 2015.

-6

-4

-2

0

2

4

6

8

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

%

Brazil Turkey Indonesia South Africa

Mexico Russia Hungary

9

Fundamentals and Policies Required During the Normalization of Global Monetary Policies

Sound growth outlook

Stable inflation outlook

Repairing imbalances

Adequate external safety net

Policy buffers

A rich set of policy tools

10






Policy buffers


11

Source: TURKSTAT

Contribution to Annual GDP Growth (Percentage Points)

GDP continues to grow at a moderate pace.

Last Observation: 2015 Q2

-10

-5

0

5

10

15

20

03

/10

06

/10

09

/10

12

/10

03

/11

06

/11

09

/11

12

/11

03

/12

06

/12

09

/12

12

/12

03

/13

06

/13

09

/13

12

/13

03

/14

06

/14

09

/14

12

/14

03

/15

06

/15

Change in Inventories

Net Exports

Final Domestic Demand

GDP

Consumer confidence indicators point to a deceleration in the private consumption for the second half.

12

Consumer Confidence

Investment and Employment Prospects

(Seasonally Adjusted)

50

55

60

65

70

75

80

85

90

50

60

70

80

90

100

110

01

/12

05

/12

09

/12

01

/13

05

/13

09

/13

01

/14

05

/14

09

/14

01

/15

05

/15

09

/15

Bloomberg HT TURKSTAT-CBRT (rhs)

0

5

10

15

20

25

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

Investment Tendency Employment Tendency

Source: Bloomberg HT, TURKSTAT, CBRT.

Last Observation: September 2015 for CNBC-e Survey,

September 2015 for TURKSTAT-CBRT Survey. Source: CBRT Business Tendency Survey Last Observation: September 2015.

The recovery in export orders is expected to limit the slowdown in the economic activity.

13

Industrial Production and Capacity Utilization


Export Orders


Source: TURKSTAT, CBRT.

Last Observation: July 2015 for Industrial Production,

September 2015 for Capacity Utilization. Source: CBRT Business Tendency Survey.


70

71

72

73

74

75

76

77

78

105

110

115

120

125

130

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

Industrial Production

Capacity Utilization (rhs)

-10

-5

0

5

10

15

20

01

/14

03

/14

05

/14

07

/14

09

/14

11

/14

01

/15

03

/15

05

/15

07

/15

09

/15

Employment continued to increase at a steady pace during the first half of the year; though some deceleration is expected in the second half.

14

LFPR and Employment Rate

Unemployment Rates

Source: TURKSTAT, Household Labor Force Survey, CBRT.

Last Observation: June 2015. Source: TURKSTAT, Household Labor Force Survey, CBRT.

Last Observation: June 2015.

19

20

21

22

23

24

25

26

27

28

42

44

46

48

50

52

05

/10

09

/10

01

/11

05

/11

09

/11

01

/12

05

/12

09

/12

01

/13

05

/13

09

/13

01

/14

05

/14

09

/14

01

/15

05

/15

Tho

usa

nd

s Participation Rate (%)

Employment (millions, right axis)

7

9

11

13

15

05

/10

09

/10

01

/11

05

/11

09

/11

01

/12

05

/12

09

/12

01

/13

05

/13

09

/13

01

/14

05

/14

09

/14

01

/15

05

/15

Unemployment Rate (percent)

Non-farm Unemployment Rate (percent)

15






Policy buffers


16

Source: TURKSTAT.

3

4

5

6

7

8

9

10

11

12

13

08

/11

10

/11

12

/11

02

/12

04

/12

06

/12

08

/12

10

/12

12

/12

02

/13

04

/13

06

/13

08

/13

10

/13

12

/13

02

/14

04

/14

06

/14

08

/14

10

/14

12

/14

02

/15

04

/15

06

/15

08

/15

CPI H I

Inflation Indicators

(Annual Percentage Change)

Energy price developments support disinflation, while exchange rate movements delay the improvement in the core indicators.


17


Import Price Index

(2010=100)

The decline in import prices partly offsets the pass-through effect from exchange rates.

Last Observation: July 2015.

60

80

100

120

140

160

180

200

220

240

260

01/1

0

05/1

0

09/1

0

01/1

1

05/1

1

09/1

1

01/1

2

05/1

2

09/1

2

01/1

3

05/1

3

09/1

3

01/1

4

05/1

4

09/1

4

01/1

5

05/1

5

Import Prices (TL)

Import Prices (USD)

18


Import Price Index

(2010=100)

The decline in import prices partly offsets the pass-through effect from exchange rates.

Last Observation: September2015.

*The values for September and August are forecasts

60

80

100

120

140

160

180

01/1

0

05/1

0

09/1

0

01/1

1

05/1

1

09/1

1

01/1

2

05/1

2

09/1

2

01/1

3

05/1

3

09/1

3

01/1

4

05/1

4

09/1

4

01/1

5

05/1

5

09/1

5

Import Prices (TL)

Import Prices (USD)

19

Source: CBRT.

Inflation expectations have edged up recently due to the impact of the uncertainty in domestic and global markets.


5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

08

/11

10

/11

12

/11

02

/12

04

/12

06

/12

08

/12

10

/12

12

/12

02

/13

04

/13

06

/13

08

/13

10

/13

12

/13

02

/14

04

/14

06

/14

08

/14

10

/14

12

/14

02

/15

04

/15

06

/15

08

/15

12 months

24 months

Inflation Expectations

(Percent)

20






Policy buffers


21

Source: TURKSTAT.

Exports to European Union

(12 months cumulative, billion Euros)

The recovery in European economies will support growth and rebalancing in upcoming quarters.


30

35

40

45

50

55

60

01

/07

07

/07

01

/08

07

/08

01

/09

07

/09

01

/10

07

/10

01

/11

07

/11

01

/12

07

/12

01

/13

07

/13

01

/14

07

/14

01

/15

07

/15

22

Source: TURKSTAT

Energy Imports

(12-Month Cumulative, Billion USD)

The favorable impact of lower oil prices on the current account balance will be more pronounced in the forthcoming period.


25

30

35

40

45

50

55

60

65

01

/10

04

/10

07

/10

10

/10

01

/11

04

/11

07

/11

10

/11

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

23

Source: CBRT.

Real Effective Exchange Rate

(CPI Based, 2003=100)

Real Effective Exchange Rates have reached historically low levels.


80

90

100

110

120

130

140

02/

03

08/

03

02/

04

08/

04

02/

05

08/

05

02/

06

08/

06

02/

07

08/

07

02/

08

08/

08

02/

09

08/

09

02/

10

08/

10

02/

11

08/

11

02/

12

08/

12

02/

13

08/

13

02/

14

08/

14

02/

15

08/

15

24

Source: CBRT.

Current Account Balance (CAB)

(12-Month Cumulative, Billion USD)

The improvement in the current account deficit will resume with the August figure and is expected to continue throughout 2015.


-80

-75

-70

-65

-60

-55

-50

-45

-40

-35

-30

10

/10

12

/10

02

/11

04

/11

06

/11

08

/11

10

/11

12

/11

02

/12

04

/12

06

/12

08

/12

10

/12

12

/12

02

/13

04

/13

06

/13

08

/13

10

/13

12

/13

02

/14

04

/14

06

/14

08

/14

10

/14

12

/14

02

/15

04

/15

06

/15

CAD CAD (Excluding gold)

25

Source: CBRT.

Current Account Deficit (CAD) Financing

(12-Months Cumulative, Billion USD)

As of July 2015, current account deficit is almost entirely financed through long term borrowing and FDI flows.

*Long term inflows are sum of banking and real sectors’ long term net credit and bonds issued by banks and the Treasury. Short term capital movements are sum of banking and real

sectors' short term net credit and deposits in banks.


-5

5

15

25

35

45

55

65

75

85

10

/10

12

/10

02

/11

04

/11

06

/11

08

/11

10

/11

12

/11

02

/12

04

/12

06

/12

08

/12

10

/12

12

/12

02

/13

04

/13

06

/13

08

/13

10

/13

12

/13

02

/14

04

/14

06

/14

08

/14

10

/14

12

/14

02

/15

04

/15

06

/15

Portfolio and Short Term** FDI and Long Term* CAD

26

Source: CBRT, External Debt Statistics of Non-Financial Corporate Sector

Maturity Structure of External Liabilities of the Corporate Sector

(Percent Share)

Half of the corporate foreign currency debt has more than three-year maturity.

22

.0

13

.2

17

.5

18

.7

28

.5

18

.1

16

.6

15

.5

20

.7

29

.2

17

.3

17

.2

14

.8

21

.8

28

.6

17

.7

15

.5

14

.2

19

.3

33

.4

0-1 Year 1-2 Years 2-3 Years 3-5 Years 5 Years +

03.14 09.14 03.15 06.15

27

Source: CBRT.

Total Loan Growth Rate

(Year on Year Change, Percent)

Loan growth has retreated to a reasonable pace due to the tight monetary policy stance and macroprudential measures.


Total loan is inclusive of all types of banks (deposit banks, participation banks, and development/investment banks) and credit cards.

Adjusted for exchange rate.

10

15

20

25

30

35

40

01

/11

03

/11

05

/11

07

/11

09

/11

11

/11

01

/12

03

/12

05

/12

07

/12

09

/12

11

/12

01

/13

03

/13

05

/13

07

/13

09

/13

11

/13

01

/14

03

/14

05

/14

07

/14

09

/14

11

/14

01

/15

03

/15

05

/15

07

/15

09

/15

70

80

90

100

110

120

130

70

80

90

100

110

120

130

01

/10

04

/10

07

/10

10

/10

01

/11

04

/11

07

/11

10

/11

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

Announcement of Required

Reserves Measure in Financial

Stability Report

28

Measures to Support Financial Stability: Supporting Turkish Lira Core Liabilities

The remuneration rate of Turkish lira required reserves may be revised to reduce the intermediation cost of banking sector and to support core liabilities.

Credit/Deposit Ratio

(Percent)

Source: BRSA Last Observation: September 11, 2015.

29

Source: CBRT Financial Stability Report, No:20

NPL Ratios For Corporate Loans

(Percent)

NPL ratios for FX corporate loans have been declining.

Last Observation: June 2015.

2.1

3.1

0.9

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

03

/13

05

/13

07

/13

09

/13

11

/13

01

/14

03

/14

05

/14

07

/14

09

/14

11

/14

01

/15

03

/15

05

/15

Total Corporate TL FX

30






Policy buffers


31

Reserve Requirement Policies

FX liquidity will be released via reserve requirement policies (before and during normalization).

CBRT Reserves

(Billion USD )

Source: CBRT Last Observation: September 11, 2015.

0

20

40

60

80

100

120

140

09

/11

11

/11

01

/12

03

/12

05

/12

07

/12

09

/12

11

/12

01

/13

03

/13

05

/13

06

/13

08

/13

10

/13

12

/13

02

/14

04

/14

06

/14

08

/14

10

/14

12

/14

01

/15

03

/15

05

/15

07

/15

FX for FX RR CBRT Other FX Reserve ROM FX CBRT Other Gold Reserves Gold for Precious Metal ROM Gold

32

Measures to Support Financial Stability: Lengthening the Maturity of Noncore FX Liabilities

FX required reserve ratios for the newly originated FX noncore liabilities of the financial institutions are adjusted to encourage further maturity extension.

0

10

20

30

40

50

60

01

/14

02

/14

03

/14

04

/14

05

/14

06

/14

07

/14

08

/14

09

/14

10

/14

11

/14

12

/14

01

/15

02

/15

03

/15

04

/15

05

/15

06

/15

07

/15

08

/15

Up to 1-Year

Longer than 3-Years

Required Reserve Measures

Up to 3-Years

Maturity Breakdown of Non-Core FX Liabilities (Percent)

Source: CBRT Last Observation: August 28, 2015.

33

FX Liquidity Measures: Foreign Exchange Deposit Market

The CBRT has expanded the safety net facility by increasing the transaction limits

at the CBRT Foreign Exchange and Banknotes Markets.

FX liquidity readily available to the financial system through ROM and foreign exchange deposit market is now considerably above the short term debt stock of the banks.

(Billion USD )

0

10

20

30

40

50

60

01/1

2

04/1

2

08/1

2

12/1

2

04/1

3

08/1

3

12/1

3

04/1

4

08/1

4

12/1

4

04/1

5

08/1

5

Short-Term FX Borrowing Facility from the CBRT

FX and Gold Held at the CBRT Accounts via the ROM Facility

60

65

70

75

80

85

90

95

100

20

30

40

50

60

70

80

90

100

01/1

2

05/1

2

09/1

2

01/1

3

05/1

3

09/1

3

01/1

4

05/1

4

09/1

4

12/1

4

04/1

5

08/1

5

ROM FX and Gold Reserves+Short-Term FX Borrowing Facility

Short Term FX External Debt of the Banking System (RHA)

Source: CBRT Last Observation: August 28, 2015. Last Observation: September 11, 2015. Source: CBRT

(Billion USD )

34






Policy buffers


Policy Buffers

Ample fiscal policy space:

• very low budget deficit, as well as primary surplus

• low public debt to GDP ratio

Ample monetary policy space

Ample macroprudential policy space

35

36






Policy buffers


The Road Map During the Normalization of Global Monetary Policies

37

Liquidity Management Simplification

•More narrow, more symmetric interest rate corridor

•Restriction on funding to primary dealers •More simplified collateral conditions

FX Liquidity Measures

•Flexible FX selling auctions •Adjustments in required reserve and Reserve

Options Mechanism conditions •Measures on FX deposit market

Measures to Support Financial

Stability •Lengthening the maturity of noncore FX

liabilities •Supporting core liabilities in Turkish Lira •Remuneration of FX required reserves

The Road Map During the Normalization of Global Monetary Policies

38

Policy Measure Timing

Interest Rate Corridor During Normalization

Funding Before Normalization

Collateral Conditions Before and During Normalization

Flexible FX Selling Auctions Before Normalization

Reserve Options Before and During Normalization

Measures on FX Deposit Market Before Normalization

Lengthening the Maturity of Noncore FX Liabilities Before Normalization

Supporting TL Core Liabilities Before and During Normalization

Remuneration of FX Required Reserves Before and During Normalization

39

Source: CBRT

Interest Rates

(Percent)

The liquidity policy has been tight and will remain tight as long as deemed necessary.

Last Observation: October 02, 2015.

3

4

5

6

7

8

9

10

11

12

13

3

4

5

6

7

8

9

10

11

12

13

05

/13

06

/13

07

/13

08

/13

09

/13

10

/13

11

/13

12

/13

01

/14

02

/14

03

/14

04

/14

05

/14

06

/14

07

/14

08

/14

09

/14

10

/14

11

/14

12

/14

01

/15

02

/15

03

/15

04

/15

05

/15

06

/15

07

/15

08

/15

09

/15

10

/15

Interest Rate Corridor CBRT Average Fund Rate

BIST Interbank Market O/N Rates One-Week Repo Rate

40

Source: CBRT.

-2

0

2

4

6

8

10

12

-2

0

2

4

6

8

10

12

04

/11

06

/11

08

/11

10

/11

12

/11

02

/12

04

/12

06

/12

08

/12

10

/12

12

/12

02

/13

04

/13

06

/13

08

/13

10

/13

12

/13

02

/14

04

/14

06

/14

08

/14

10

/14

12

/14

02

/15

04

/15

06

/15

08

/15

5-Year Market Rate 3-Month Market Rate

5 year-3 month spread

Interest Rates

(Percent)

Last Observation: October 02, 2015.

Yield curve is flat due to the tight liquidity policy.

41

Source: CBRT.

Loan Growth Rates (Annual Percentage Change)

Commercial loans grow at a faster pace than consumer loans, contributing to price stability, financial stability, and the rebalancing process.


Inclusive of loans extended by all types of banks (deposit banks,

Participation banks, and development/investment banks). FX adjusted.

Commercial

Consumer

0

5

10

15

20

25

30

35

40

45

50

0

5

10

15

20

25

30

35

40

45

50

01

/10

04

/10

07

/10

10

/10

01

/11

04

/11

07

/11

10

/11

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

42

FX Liquidity Measures: Flexible FX Sale Auctions

Flexibility of FX sale auctions is increased to contain exchange rate volatility.

FX Sale Auctions

(Million USD )

Source: CBRT Last Observation: September 30, 2015.

0

200

400

600

800

1000

1200

0

20

40

60

80

100

120

06

/14

07

/14

08

/14

09

/14

10

/14

11

/14

12

/14

01

/15

02

/15

03

/15

04

/15

05

/15

06

/15

07

/15

08

/15

09

/15

Monthly Quantity Sales of FX Sales (Right Axis)

Daily FX Sales

Central Banking Seminar, The Implications of Divergent Monetary Policies

Federal Reserve Bank of New York

October 07, 2015

Thank you!

external impact of us monetary policy on emerging markets...supporting turkish lira core liabilities...

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