The Turkish economy has made a soft landing from high growth rates, but the caution lights are not off yet, Turkey’s Central Bank Gov. Erdem Başçı said Friday.
“A healthy soft landing already took place in Turkey, we are now moving in the airfield. However, the warning lights are not off yet. Please do not unfasten your seatbelts,” Başçı said in his speech Friday at a conference on “Monetary Policy” at the western province of Edirne’s stock exchange.
Making a comparison of how emerging countries reacted to recent global monetary expansion, Başçı instead of applying taxes to prevent capital flows and made short-term interest rates less attractive - as many others did, Turkey chose precautionary macroeconomic measures. “One of the tools for such policy is the reserve requirement ratio. Short-term interest rates were kept low, whereas the amount of loans increased significantly. The Central Bank, thus, used the reserve requirement ratio as a tool for contractionary policy to limit the increase [in loans],” he said.
The bank also used the interest rate corridor for the soft-landing, Başçı said. Turkey’s current policy on interest rates is supporting the economy, he added.
No further lira depreciation
The governor also commented on recent developments regarding the value of the Turkish Lira, saying they would not allow a further depreciation.
Recalling that the lira had been losing value since November 2010, he said they believed they had avoided the pressure of devaluation of lira with the global monetary expansion.
“The loss of value in our local currency has been limited recently, given the lira’s gradual devaluation, Başçı said. “Nowadays, nobody can say the lira has excessively appreciated. This is also part of the soft landing. We are prepared for any new increase [in the lira’s value against foreign currencies].”
Başçı said the Central Bank considered the loss in lira’s value sufficient and warned, “As policymakers, we will not allow any further depreciation.”
The decrease in consumer loans growth rate to 10 percent is extremely positive, Başçı said, adding that further constraining growth in loans would not be the right policy at a time when the economy is slowing down.
Başçı also guaranteed banks that the Central Bank would not put constraints on commercial loans. “[Banks] should feel at ease regarding commercial loans. We will not allow pressure on deposit rates.”
Turkey’s Central Bank is one of the most conservative ones, according to Başçı, who said the Central Bank is currently watching a tight monetary policy. “We believe our policy on interest rates is at rather low levels. We also have a tight non-inflationary liquidity policy.”
Inflation target
The country is in a good position regarding excess reserves, as there is no excess money, thus there are no inflationary pressures, Başçı said. Further commenting on inflation in Turkey, he said, “This year, our inflation target of 5.5 percent will be exceeded but the chances that we stick to our 5 percent target for 2012 are increasing day by day.” Although inflation for September might approach the target, it will probably rise again by the end of the year, he added.
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Source : hurriyetdailynews.com
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