Briefing on Inflation Report 2015-I
Erdem BAŞÇI
Governor
27 January 2015
Ankara
Inflation Report: Main Sections
Overview
International Economic Developments
Inflation Developments
Supply and Demand Developments
Financial Markets and Financial Intermediation
Public Finance
Medium Term Projections
2
Inflation Report: Boxes
Effects of Crude Oil Prices on Consumer Prices
Relationship Between International and Domestic Grain Prices
Role of Base Effects on Consumer Prices in 2015
Liability Dollarization and Growth Performance of Non-Financial
Firms in Turkey
Macroeconomic Effects of International Energy Prices
Interest Payments on Required Reserves
Sources of Revisions to end-2014 Inflation Forecasts
3
Portfolio Flows and Risk Premium
Portfolio Flows to Emerging Economies
CDS for Emerging Economies and Turkey
(4-Week Moving Average, Billion USD)
(Basis points)
and Currency Volatility Index (JPMVXYEM) (Percent)
Turkey
Equity Funds
Bond Funds
Emerging Economies*
13
300
6
12
275
275
4
11
250
250
225
225
8
200
200
7
175
175
150
150
125
125
100
100
8
JPMVXYEM (right axis)
300
Selected Economies Average**
10
2
9
0
-2
-4
Source: EPFR, Bloomberg.
1114
0914
0714
0514
0314
0114
1113
0913
0713
0513
0313
1014
0714
0414
0114
1013
0713
3
0413
-10
0113
4
1012
-8
0712
5
0412
-6
0113
6
*Brazil, Czech Rep., Indonesia, S. Africa, Colombia, Hungary, Mexico, Poland, Romania ve Chile.
** Brazil, Indonesia, and S.Africa.
Source: Bloomberg
Recently, risk premia and portfolio flows to emerging market economies
followed a volatile course .
4
Monetary Policy and Financial
Conditions
5
Monetary Policy
CBRT Rates and BIST Interbank O/N Repo Rates
CBRT Funding*
(Percent)
(2-Week Moving Average, Billion TL)
Interest Rate Corridor
CBRT Average Fund Rate ( 5 day MA)
BIST Overnight Rates (5 day MA)
1 Week Repo Rate
Marginal Funding
ON Funding
One Week Repo
1 Month Repo
Reverse Repo at the BIST and Interbank Money Market
Net Open Market Operations
60
13
13
50
11
11
40
40
9
9
30
30
7
7
20
20
5
5
10
10
3
3
0
0
1
1
-10
Source: BIST, CBRT.
60
50
0115
1114
0914
0714
0514
0314
0114
1113
0913
0713
0513
0313
-10
0113
0711
0911
1111
0112
0312
0512
0712
0912
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
15
15
*Marginal funding is O/N funding quoted at the upper limit of the corridor.
Source: BIST, CBRT.
Due to favorable developments regarding inflation outlook, CBRT decided on a
measured cut in the one week repo rate in January.
6
Monetary Conditions
Yield Curve
(Percent)
(Percent)
5 Year-BIST O/N Interest differential
5-year Market Rate
BIST Interbank Market O/N Rates (5 Day MA)
CBRT Average Funding Rate
3 November-23 January Average
2-23 January Average
8
8
8.5
8.5
6
6
8.0
8.0
4
4
2
2
7.5
7.5
0
0
7.0
7.0
-2
-2
6.5
6.5
-4
-4
6.0
6.0
10.00
9.0
9.00
9.0
8.00
10
7.00
10
5.00
9.5
4.00
9.5
3.00
12
2.00
12
1.00
10.0
0.50
10.0
0.25
14
0511
0711
0911
1111
0112
0312
0512
0712
0912
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
14
Money Market and CBRT Funding Rates
Maturity (Year)
Source: BIST, CBRT.
Shaded region denotes the range of yields at each maturity between 3 November-23
January. Source: Bloomberg.
Tight monetary policy stance is maintained by keeping the yield curve flat.
7
Financial Stability
Commercial Loan Growth
Consumer Loan Growth
(13-Week Moving Average, Adjusted for Exchange Rate,
Annualized, Percent)
(13-Week Moving Average, Annualized, Percent)
2014
2014
2007-2013 Average
2007-2013 Average
10
10
10
10
5
5
5
5
0
0
0
0
Source: CBRT
12
15
11
15
10
15
09
15
08
20
07
20
06
20
05
20
04
25
03
25
02
25
01
25
12
30
11
30
10
30
09
30
08
35
07
35
06
35
05
35
04
40
03
40
02
40
01
40
Source: CBRT.
Commercial loans grow at a faster pace than consumer loans.
8
Macroeconomic Developments and
Main Assumptions
9
October Inflation Report Forecasts and Realizations
October Inflation Forecasts and Realizations
Excluding Unprocessed Food and Tobacco
October Inflation Forecasts and Realizations
(Percent)
(Percent)
October 2014 Forecasts*
October 2014 Forecasts*
Actual Inflation
Actual Inflation
9
9
8
8
8
8
7
7
7
7
6
6
6
6
1214
11
0914
9
0614
9
0314
10
Percent
10
1214
10
0914
10
0614
11
0314
11
Percent
11
* Shaded region indicates the 70 percent confidence interval for the forecast.
Source: TURKSTAT, CBRT.
At the end of 2014, inflation was realized lower than October Inflation Report
forecast.
10
Inflation
Core Inflation Indicators SCA-H and SCA-I
Oil Prices (USD/Barrel) and Energy Inflation
(Seasonally Adjusted, Annualized 3 Month Average Percent Change)
(Annual Percentage Change)
H
17
I
17
15
15
13
13
18
Energy Inflation
16
Oil Prices (right axis)
140
120
14
12
100
10
11
11
8
80
9
9
6
4
7
7
5
5
3
3
60
2
40
-2
0115
1014
0714
0414
0114
1013
0713
0413
0113
1012
0712
20
0412
-4
0112
1014
0714
0414
0114
1013
0713
0413
0113
1012
0712
0412
0112
0
Source: TURKSTAT, CBRT.
Thanks to the positive effects of tight monetary policy stance and macro
prudential measures, trend of core inflation indicators improved
significantly.
11
Aggregate Demand Developments
Contribution to Annual Growth from
Production Side
GDP and Final Domestic Demand
(Seasonally Adjusted, Billion TL, 1998 Prices)
GDP
Final Domestic Demand
32
30
30
28
28
26
26
24
24
Millions
32
(Percantage Point)
8
7
Net Tax
Agriculture
Construction
Industry
Services
GDP
8
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
22
22
1234123412341234123412341234123
2007 2008 2009 2010 2011 2012 2013
Source: TURKSTAT, CBRT.
-1
4
1
2
3
2012
4
1
2
3
2013
4
1
2
3
2014
14
Source: TURKSTAT, CBRT.
After first quarter of 2014, there was some deceleration in growth rates.
12
External Balance
Export and Import
Current Account Balance
(Yearly Change, 6-Month Average)
(12-Month Cumulative, Billion USD)
10
0
0
-10
-20
-20
-30
-30
-40
-40
0108
0508
0908
0109
0509
0909
0110
0510
0910
0111
0511
0911
0112
0512
0912
0113
0513
0913
0114
0514
0914
-10
-30
-30
-50
-50
-70
-70
-90
-90
1114
10
0514
20
-10
1113
20
-10
0513
30
10
1112
30
30
10
0512
40
1111
40
0511
50
1110
50
30
0510
60
1109
Import (excluding gold)
0509
60
CAB
CAB (excluding gold)
CAB (excluding energy and gold)
1108
Export (excluding gold)
Source: TURKSTAT, CBRT.
Despite the weak external demand, macroprudential measures and declining
oil prices support the improvement in current account balance.
13
Oil and Import Prices
Oil Prices*
Import Prices*
(USD/barrel)
(USD, 2010=100)
120
100
90
90
80
80
70
70
Realization
105
100
100
Realization
95
90
90
1212
95
0612
1215
0615
1214
0614
1213
0613
40
1212
40
0612
50
1211
105
60
50
* Shaded area indicates the forecast horizon.
Source: Bloomberg, CBRT.
110
1211
60
110
1215
100
115
0615
110
October 2014
115
1214
110
120
January 2015
0614
October 2014
120
120
1213
130
0613
January 2015
130
* Shaded area indicates the forecast horizon.
Source: TURKSTAT, CBRT.
In the fourth quarter of the year, outlook of oil and import prices remained
significantly below the path envisaged in the October Inflation Report.
14
Monetary Policy Stance
Medium-term forecasts are based on the framework that a
cautious approach will be adopted to make the
improvement in inflation outlook permanent and the tight
monetary policy stance will be maintained by keeping the
yield curve flat.
It is assessed that the annual loan growth rate will continue
to hover around the recent reasonable levels in 2015, also
thanks to the macroprudential measures.
15
Inflation Outlook
Inflation and Output gap Forecasts
12
Forecast Range*
Uncertainty Band
Year-End Inflation Targets
Output Gap
10
Accordingly, inflation is expected
to
12
10
Control
Horizon
1217
0917
0617
0317
1216
-4
0916
-4
0616
-2
0316
-2
1215
0
0915
0
0615
2
0315
2
1214
4
0914
4
0614
6
0314
6
1213
8
Percent
8
be between 4.1 % and 6.9 %
(mid-point of 5.5 %) by the
end of 2015,
be between 3.2 % and 6.8 %
(mid-point of 5 %) by the
end of 2016,
stabilize at 5 % in the
medium term
with 70 percent probability.
*Shaded region indicates the 70 percent confidence interval for the forecast.
16
Briefing on Inflation Report 2015-I
Erdem BAŞÇI
Governor
27 January 2015
Ankara