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MACROECONOMIC OUTLOOK AND
MONETARY POLICY IN TURKEY
Murat Çetinkaya
Governor
2017 Annual Meeting of the IMF and the World Bank Group
October 2017
Washington D.C.
2
Outline
I. Macroeconomic Outlook
II. Inflation Outlook
III. Monetary Policy and Financial Conditions
3
Macroeconomic Outlook
Turkey continues to outperform emerging economies.
Emerging Economies excluding China and India: Brazil, Chile, Colombia, Czechia, Hungary, Indonesia, Malaysia, Mexico, Morocco, Peru,
Philippines, Poland, Romania, Russia, S. Africa, Thailand, Turkey, Ukraine.
Growth Rates in Turkey and Emerging Economies(Percent)
Source: Bloomberg, CBRT. Last Observation: 2017 Q2
4
-2
0
2
4
6
8
10
12
20
12
20
13
20
14
20
15
20
16
20
17
Developing Countries excluding China and India Turkey
5
Economic activity has strengthened recently.
Source: TURKSTAT.
Gross Domestic Product(Seasonally and Calendar Adjusted, Chain-Linked Volume Index, 2009=100)
Last Observation: 2017 Q2
3.91.3
2.1
120
125
130
135
140
145
150
155
160
165
170
-5
-4
-3
-2
-1
0
1
2
3
4
5
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2012 2013 2014 2015 2016 2017
QoQ Level (right axis)
Net exports have contributed positively during the first half.
Annual GDP Growth and Contributions (Percentage Points)
6
Source: TURKSTAT. Last Observation: 2017 Q2
* Contains residual item.
- 4
- 2
0
2
4
6
8
10
1 2 3 4 1 2 3 4 1 2 3 4 1 2
2014 2015 2016 2017
Stock Movements* Net Exports Investment Expenditure
Government Expenditure Private Consumption GDP
Leading indicators suggest strong growth in 2017 Q3.
7
PMI Production Index
(Seasonally Adjusted)
Industrial Production(QoQ, Seasonally Adjusted)
Source: CBRT, TURKSTAT. Source: PMI Markit. Last Observation: September 2017*As of August
40
42
44
46
48
50
52
54
56
58
60
20
12
20
13
20
14
20
15
20
16
20
17
1.41.9
1.6
-4
-3
-2
-1
0
1
2
3
4
5
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2014 2015 2016 2017
Consumption demand supports economic growth.
(1) Composite indicator is the weighted average of the annual percentage changes of automobile domestic sales, white goods domestic salesand sales volume index.
Private Consumption and Composite Indicator(1)
(Annual Percentage Change)
Source: ADA, CBRT, TURKBESD, TURKSTAT.*As of August.
8
0
2
4
6
8
10
12
14
16
18
20
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*
2011 2012 2013 2014 2015 2016 2017
Composite Indicator for Private Consumption Private Consumption
Investment demand shows signs of recovery.
(1) Composite indicator is the weighted average of the annual percentage changes of machinery-equipment production, domestic industrialturnover in capital goods production, imports of capital goods and production of other mineral goods.
Investment and Composite Indicator(1)
(Annual Percentage Change)
Source: CBRT, TURKSTAT. *As of August.
9
-5
0
5
10
15
20
25
30
35
40
45
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*
2011 2012 2013 2014 2015 2016 2017
Composite Indicator for Investment Investment
Source: CBRT.
10
Export oriented firms display stronger performance.
Capacity Utilization Rate(Seasonally Adjusted, Percent)
Last Observation: September 2017
70
72
74
76
78
80
82
84
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
2011 2012 2013 2014 2015 2016 2017
Exporters Others
11
Source: CBRT, Eurostat, IHS.
Exports to EU and EU’s Final Domestic Demand
Demand from the EU economies will continue to provide significant contribution to export growth.
*Forecast
Last Observation: 2016
20
40
60
80
100
120
140
160
9
10
11
12
13
14
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
*
20
18
*
EU's Final Domestic Demand (2010, trillion €) Exports to EU (2010=100, right axis)
12
Turkey’s share in world exports has been rising steadily.
Source: TURKSTAT, WTO.
Share of Turkey in World Exports(Excluding Gold, 12-Month Moving Average, Percent)
Last Observation: July 2017
0.92
0.75
0.80
0.85
0.90
0.95
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
13
Source: CBRT.
Real exchange rate hovers at historically low levels.
Last Observation: September 2017
Real Effective Exchange Rate
(CPI-Based, 2003=100)
90.3
80
90
100
110
120
130
140
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
14
Source: CBRT, TURKSTAT.
The ongoing recovery in tourism will support economic growth and external balance.
* Forecast.
Tourism Revenues
(Real, Seasonally Adjusted, 2011=100)
60
70
80
90
100
110
120
130
140
150
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*
2010 2011 2012 2013 2014 2015 2016 2017
Current Account Balance(12-Month Cumulative, Percent of GDP)
15
Core current account indicators continue to improve.
Source: CBRT. Last Observation: 2017 Q2
-4.1
-3.5
-0.2
-10
-8
-6
-4
-2
0
2
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
2010 2011 2012 2013 2014 2015 2016 2017
CAB/GDP CAB/GDP (excl. gold) CAB/GDP (excl. gold and energy)
16
Financing Composition of Current Account Deficit(12-Month Cumulative, Billion USD)
Current account deficit is financed mainly through long term borrowing and FDI flows.
Last Observation: August 2017Source: CBRT.
*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.
-40
-20
0
20
40
60
80
100
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
FDI Portfolio and Short Term Other Long Term CAD
17
Inflation Outlook
18
CPI and Core Price Index (B)*
(Annual Percentage Change)
CPI inflation and core indicators remain at elevated levels.
*B index, among special indicators, which are newly released by the TURKSTAT, is the successor of the H index released before 2017.
B: CPI excluding unprocessed food, energy, alcoholic beverages tobacco and gold.
Last Observation: September 2017Source: TURKSTAT, CBRT.
4
5
6
7
8
9
10
11
12
20
13
20
14
20
15
20
16
20
17
CPI B
19
Shaded area shows the forecasts for August and September 2017.
Source: TURKSTAT, CBRT.
The pass-through impact from cost factors has been one of the main drivers of inflation in 2017.
Last Observation: July 2017
Import Price Index
(2010=100)
60
80
100
120
140
160
180
200
220
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Import Prices (in USD) Import Prices (in TL)
20
Inflation is expected to decelerate starting from the end of the year.
July 2017 Inflation Report Forecasts
*Shaded region indicates the 70 percent confidence interval for the forecast.
Source: CBRT.
-3
-1
1
3
5
7
9
11
13
-3
-1
1
3
5
7
9
11
13
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
09
.19
12
.19
03
.20
06
.20
Forecast Range* Uncertainty Band Year-End Inflation Targets Output Gap Realization
Control
Horizon
21
Monetary Policy and Financial Conditions
CBRT maintains a tight monetary policy stance.
Source: BIST, Bloomberg, CBRT. Last Observation: October 10, 2017
22
Short Term Interest Rates
(Percent)
5
6
7
8
9
10
11
12
13
14
5
6
7
8
9
10
11
12
13
14
20
16
20
16
20
16
20
16
20
16
20
16
20
17
20
17
20
17
20
17
20
17
Late Liquidity Window USDTRY 1 Week Forward Implied Yield (5 Day MA)
CBRT Average Funding Rate Non-CBRT Average O/N Funding Rate in BIST
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
3 6 12 24 36 48 60 84 120
Term (Month)
9-Jan-17 10-Oct-17
The yield curve confirms the tight stance of monetary policy.
Source: Bloomberg. Last Observation: October 10, 2017
23
Yield Curve
(Treasury Rates, Percent)
Loan growth has accelerated due to supportive measures.
Last Observation: September 29, 2017
24
Annual Percentage Change
(Adjusted for Exchange Rate Effect)
Source: CBRT.
0
5
10
15
20
25
0
5
10
15
20
25
03
.15
09
.15
03
.16
09
.16
03
.17
09
.17
Commercial Consumer
Recently, loan growth momentum has converged to historical trends.
Last Observation: September 29, 2017
25
Loan Growth
(Adjusted for Exchange Rate Effect, 13 Week MA, Annualized)
Source: CBRT.
0
10
20
30
40
0
10
20
30
40
Jan
Feb
Mar
Ap
r
May Jun
Jul
Au
g
Sep
Oct
No
v
Dec
2008-2016 Average 2017
26
Source: CBRT.
Loans and deposits grow at similar pace since 2016.
Loan and Deposit Growth Rate (Nominal, Percentage Change Over Previous Year)
0
5
10
15
20
25
30
35
40
45
0
5
10
15
20
25
30
35
40
45
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Loans Deposits
Last Observation: September 29, 2017
Asset quality confirms the resilience of firms against shocks.
27
NPL Ratios*
(Percent)
1.1
3.6
3,1
0
1
2
3
4
5
0
1
2
3
4
5
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2013 2014 2015 2016 2017
FX Corporate TL Corporate Total
Source: CBRT.
* FX and TL corporate NPL ratios are calculated by taking into account of 10 banks‘ data which have 78% share in total FX loans. Total NPL ratio is sector average.
Last Observation: 2017 Q2
28
Overview
Recent data indicate that economic activity has gained strength.
Elevated levels of inflation and inflation expectations pose upside
risks on the pricing behavior.
Tight policy stance will be maintained decisively to ensure the
alignment of inflation outlook with the targets.
Factors affecting inflation will be closely monitored and, if needed,
further monetary tightening will be delivered.
MACROECONOMIC OUTLOOK AND MONETARY POLICY IN TURKEY
Murat Çetinkaya
Governor
2017 Annual Meeting of the IMF and the World Bank Group
October 2017
Washington D.C.