Thursday, May 5, 2011
ISTANBUL - Hürriyet Daily News
 Turkish Central Bank Gov. Erdem Başçı is pursuing a highly unorthodox policy of leaving interest rates low in an effort to curb short-term capital inflows. DAILY NEWS photo, Selahattin SÖNMEZ |
Weeks after the Federal Reserve organized a press briefing for the first time in the U.S. central bank’s history, top officials of the Turkish Central Bank met with chief economists of lenders in an effort to explain their aims. However, the closed meeting, held in Istanbul on Wednesday, left some questions unanswered for bank economists.
Gov. Erdem Başçı is pursuing a highly unorthodox policy of leaving interest rates low in an effort to curb short-term capital inflows, even as other emerging-market central banks raise rates to curb inflation. Meanwhile, he is also raising reserve requirements for banks as the Central Bank tries to curb potentially destabilizing credit expansion and limit the current account deficit, which stood at $54.8 billion in the 12 months through February.
Speaking to the Hürriyet Daily News after the event on Wednesday, Başçı said he aimed to “clarify issues” and that the meeting was “not related to the Central Bank’s future policies.”
Bank economists briefed by Başçı and his deputies said they expect the policy mix of low interest rates and higher reserve requirements to continue.
Nurhan Toguç, the chief economist of Ata Invest, said she could not get a clear answer on the possible effects of the Federal Reserve decision to halt buying U.S. Treasuries as of June. “Further actions from the Turkish Central Bank are still not clear, particularly when we consider the Fed’s [upcoming] move,” she said, noting possible downward pressure on the Turkish Lira.
“I have doubts about the possibility of controlling credit expansion through reserve requirements,” Toğuç said, adding that Central Bank official were rather reserved about hinting at any additional instruments that might be used to this end.
Mopping up liquidity
Hikes in required reserve ratios since September have led to a withdrawal of around 40 billion liras of liquidity from the banking system, according to the Central Bank presentation to economists. The Central Bank gives no interest on the reserves it keeps, a source of complaint for many banks. İnan Demir, the chief economist of Finansbank, said lenders have lost up to 10 percent of their earnings that could be generated through an interest rate.
“Meanwhile, banks have to pay an interest rate of around 6 percent to the Central Bank,” as they benefit from the one-week repo window, Demir said.
The Finansbank economist expects a new hike in reserve requirements in the second half of the year, while adding that this instrument “might not be enough to control credit expansion.”
Starting from May 13, Turkish banks will be required to park 12 percent of short-term lira deposits at the Central Bank, without any interest. Previously, the rate was 11 percent.
Speaking after the meeting, Haluk Bürümcekçi, chief economist of EFG Securities, said the primary aim of the Central Bank is to cut consumer credit expansion to the level of the average expansion rate of the 2006-2010 period, which was 26 percent.
“It seems that consumer loan growth has decreased to the level of the average of last five years in May,” Bürümcekçi said. According to the economist, this is an indication that the Central Bank is “on the right track so far.”
In another development, the Central Bank will from now on meet investors only once in every three months to brief them on its policies. Tuğrul Gürgür, the Bank spokesman, told the Daily News that Gov. Başçı and his deputies will meet investors "after the release of each inflation report." The next meeting will be held after July 28 and the third one will be after Sept. 26.
“The communication method of the bank has changed as Başçı will meet all investors at the same time, rather than one-on-one meetings," Gürgür said, adding that this will increase transparency.
Gov. Erdem Başçı is pursuing a highly unorthodox policy of leaving interest rates low in an effort to curb short-term capital inflows, even as other emerging-market central banks raise rates to curb inflation. Meanwhile, he is also raising reserve requirements for banks as the Central Bank tries to curb potentially destabilizing credit expansion and limit the current account deficit, which stood at $54.8 billion in the 12 months through February.
Speaking to the Hürriyet Daily News after the event on Wednesday, Başçı said he aimed to “clarify issues” and that the meeting was “not related to the Central Bank’s future policies.”
Bank economists briefed by Başçı and his deputies said they expect the policy mix of low interest rates and higher reserve requirements to continue.
Nurhan Toguç, the chief economist of Ata Invest, said she could not get a clear answer on the possible effects of the Federal Reserve decision to halt buying U.S. Treasuries as of June. “Further actions from the Turkish Central Bank are still not clear, particularly when we consider the Fed’s [upcoming] move,” she said, noting possible downward pressure on the Turkish Lira.
“I have doubts about the possibility of controlling credit expansion through reserve requirements,” Toğuç said, adding that Central Bank official were rather reserved about hinting at any additional instruments that might be used to this end.
Mopping up liquidity
Hikes in required reserve ratios since September have led to a withdrawal of around 40 billion liras of liquidity from the banking system, according to the Central Bank presentation to economists. The Central Bank gives no interest on the reserves it keeps, a source of complaint for many banks. İnan Demir, the chief economist of Finansbank, said lenders have lost up to 10 percent of their earnings that could be generated through an interest rate.
“Meanwhile, banks have to pay an interest rate of around 6 percent to the Central Bank,” as they benefit from the one-week repo window, Demir said.
The Finansbank economist expects a new hike in reserve requirements in the second half of the year, while adding that this instrument “might not be enough to control credit expansion.”
Starting from May 13, Turkish banks will be required to park 12 percent of short-term lira deposits at the Central Bank, without any interest. Previously, the rate was 11 percent.
Speaking after the meeting, Haluk Bürümcekçi, chief economist of EFG Securities, said the primary aim of the Central Bank is to cut consumer credit expansion to the level of the average expansion rate of the 2006-2010 period, which was 26 percent.
“It seems that consumer loan growth has decreased to the level of the average of last five years in May,” Bürümcekçi said. According to the economist, this is an indication that the Central Bank is “on the right track so far.”
In another development, the Central Bank will from now on meet investors only once in every three months to brief them on its policies. Tuğrul Gürgür, the Bank spokesman, told the Daily News that Gov. Başçı and his deputies will meet investors "after the release of each inflation report." The next meeting will be held after July 28 and the third one will be after Sept. 26.
“The communication method of the bank has changed as Başçı will meet all investors at the same time, rather than one-on-one meetings," Gürgür said, adding that this will increase transparency.
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