The bank has been working on measures to preempt credit overheating in Turkey as part of efforts to avoid a further overheating of the economy since the beginning of the second quarter. Early this year, the government announced that it had set a target of increasing bank loans by as much as 20-25 percent for 2011. The central bank has also supported the government proposal; while, the country's Banking Regulation and Supervision Agency (BDDK) raised its provisioning and risk-weight requirements for unsecured consumer loans in an attempt to tame loan growth. Speaking to reporters on the sidelines of a conference on policies to maintain financial stability Friday in İstanbul, Başçı said the bank's efforts have helped reduce growth in bank loans to 10 percent from 50 percent levels in the past year. “Loan growth has slowed to 10 percent in the past 10 days. … If we continue at this level, we will be able to reach year-end targets,” he said, adding the bank was committed to easing loan growth.
Başçı underlined that current loan growth levels will help keep possible external shocks at bay for the Turkish economy while increasing the economy's resilience. As he noted that they had experienced how short-term fluctuations in capital inflows could bring risks for emerging markets, Başçı said fast loan growth in the final quarter of 2010 in Turkey was an example. “In order to minimize such risks the central bank has started to use two new instruments: reducing interest rates and required reserve ratios. “I am glad to say that these measures have proven successful so far.” The central bank had earlier decided to widen the interest rate corridor via a significant increase in lending rates, a maneuver aimed at maintaining price stability and financial stability. It also separately reduced its short-term lira reserve requirements, expecting to have more liquidity.
Observers said additional liquidity would not contradict monetary tightening. Başçı said keeping loan growth at a desired level will help minimize risks of inflation as well. In the face of fast growing domestic demand, the central bank revised its year-end inflation forecast from 6.9 percent to 8.3 percent at the beginning of this month. The bank, however, repeatedly said it would implement “all the necessary measures” to maintain price stability in the medium term.
Alongside inflation, the central bank governor said a slowdown in loan growth could also lead to a faster-than-expected recovery in Turkey's widening current account deficit (CAD). The unstoppable rise in the CAD has become a structural problem in Turkey, mainly emerging from the gap in the foreign trade deficit. Turkey's CAD surged by 79.1 percent in September compared to the same period of 2010, reaching the highest level in the ninth month of the past 18 years, at $6.76 billion.
Başçı said from experiences in Turkey, they have learned that ignoring financial stability when deciding monetary policies created serious risks for the economy. Başçı said Turkey's experience has raised questions regarding central banks' policies in global markets, urging many to revise their monetary programs. “Having received support in such platforms as the G20, the International Monetary Fund (IMF) and the Bank for International Settlements (BIS), this argument has also created a new area of academic research,” he opined. “When we observe central banks in the world we see that they are giving more importance to financial stability today than they did in the past.
The European Central Bank (ECB) and British and US central banks are examples in this category.” Başçı also said central banks of such countries as Brazil, the Czech Republic, South Africa and Serbia focused on financial stability alongside inflationary stability. Reiterating the change of attitude in addressing economic risks, Başçı said central banks of developed countries also adopted unorthodox methods following the 2009 finance crisis that ravaged world markets. |
Source : todayszaman.com
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