The Kapali Carsi

Friday I’m in love (with the Central Bank of Turkey)

I could not think of a better inaugural Friday column than Turkish monetary policy, given my extensive coverage of the topic. That is partly the Central Bank’s fault, as they have introduced quite a bit of innovation to a field usually deemed boring.

Here’s the intro. to my Hurriyet Daily News (HDN) column, where I discuss yesterday’s Central Bank of Turkey Monetary Policy Committee (MPC) rate-setting meeting in the context of the latest Turkish econ. data. Anyway, you can read the whole thing at the HDN website.

I have a few things to add, but before that I have an important announcement: Seeing my column today might make you feel like it is Monday- that is if Monday has a feel, as Newman is claiming. After nearly four years writing at Hürriyet Daily News (my anniversary is November 24, in case you would like to buy me a present) on Mondays, I will be writing on Fridays as well from now on. Some of the Fridays will be like a “week in review”, while a common Monday topic will be “the week ahead”. But I will have plenty of ad-hoc stuff as well. I will also have the opportunity to comment on the latest economic developments on Friday, as in this inaugural column. In sum, a small step for mankind, but a big one for me:)…

As my take on the rate cut: Many economists felt that the Bank was worried about inflation and because of that “had done nothing”. While I agree with the former, I think what the Bank did is much more than nothing. For one thing, with the lower-than-expected cut, the Bank is not only showing its concern over inflation, but also that it won’t yield to political pressure from Economy Minister Zafer Caglayan & co. I also got the impression, from the one-pager, that they have at least another 50 bp cut in store. It seems Citi’s Turkey economists feel the same way. BTW, the MPC also involved decisions on Reserve Option Coefficients (ROCs) and Open Market Operations (OMOs). I could not link to those in the column, as the English versions of these documents are released a bit late. And if you are wondering on the direction of monetary policy, I have a much more complicated version of my first graph in the column:

The first thing to note is that the effective funding rate has actually hit the policy rate. The one-month repo (set by auction) actually came out lower than the one-week repo (set by the policy rate) on Friday. Second, money market rates, just over 5 percent, are at the bottom of the corridor. This is because banks have ample liquidity, so no one will pay more than the Central Bank rate to borrow. And if you are looking for more reading on Turkish monetary policy, Radikal columnist Fatih Ozatay recently ran a trilogy on Turkish monetary policy (in Turkish). His final piece makes the same point in my column that ROCs have induced banks to increase their external borrowing. There are links to the first two columns from that one.

As for the data I mention in the column, I think the most important release of the past week was labor force statistics. I think the foremost authority on Turkish labor is Istanbul think-tank BETAM, so I’d recommend their August employment report if you speak Turkish- or their head Seyfettin Gursel’s Radikal column if you don’t have the time for the whole thing.

Comments are closed.