Turkish central bank acts to support financial stability

Updated 25 December 2012
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Turkish central bank acts to support financial stability

ISTANBUL: Turkey's central bank will add a required reserve ratio (RRR) based on banks' leverage ratios to its policy tool kit in early 2014 to support financial stability, officials said in an end of year news conference on Tuesday.
Laying out its approach on policy for 2013, Gov. Erdem Basci gave no new hints of the bank's next policy move after a series of interest rate cuts in the past six months.
He said the bank would continue to use a complicated mix of a managed interest rate corridor, forex and lira liquidity management, maturity-based RRRs and reserve option coefficients as policy tools in 2013.
"In the new regime, financial stability will be maintained as the main goal," the governor said, noting the risks that stimulation of the economy through monetary policy carries for the country's financial stability.
Reuters reported in November that the bank was considering setting up an early warning system to avert the risk of cheap foreign borrowing feeding a credit bubble and could consider stricter reserve requirements for banks deemed too highly leveraged from 2014 if it sees such problems developing.
"The monetary policy stance will continue to be characterized by short term interest rates and tight macroprudential measures," said Gokce Celik, an analyst at Finansbank.
"We welcome central bank's actions on the macroprudential side, as we foresee domestic demand accelerating in the upcoming period which would translate into excessive loan growth and external balance deterioration in the absence of a policy response."
The bank will require an additional RRR of two points if a bank's leverage ratio is below 3 percent for a period of three months, but Basci added no Turkish bank currently had a leverage ratio below 3.5 percent.
The bank will require an additional RRR of 1 points if a bank's leverage ratio is between 3.25-3.50 percent and will ask for an additional 1.5 percent RRR if a bank's leverage is between 3-3.25 percent for a period of three months, Basci said, adding that it would be a preventive measure.
Turkey received its first investment grade rating in 18 years from Fitch in early November, putting upward pressure on the lira, which rose a three-month high against the dollar following the upgrade.
The currency has gained just over 5 percent against the dollar this year after falling as much as 20 percent in 2011.
Investors expect a second agency to follow suit next year, paving the way for further foreign capital to flow into the country. The central bank has said in the past it will act swiftly if the real exchange rate rises too quickly.
Basci said he expected the country's inflation rate at the end of 2012 to be below 6.5 percent and "near" the year-end target of 5 percent. This would be the lowest year-end inflation since the bank began inflation targeting in 2005. The lowest year-end inflation over the past years was 6.4 percent in 2010.
The inflation target for each of the next three years will also be 5 percent, he said, announcing the 2015 target for the first time.

He added that the plus or minus two percentage point tolerance band which the bank has on either side of the target may be reduced in coming years.
Turkey was the fastest-growing economy in Europe last year, expanding 8.5 percent, but domestic demand has slumped and the economy slowed more than anticipated in the third quarter, registering growth of just 1.6 percent.
The central bank has been trying to stoke growth by boosting liquidity since the middle of the year, but the current account deficit has meant it has been cautious not to cut too aggressively.
The yield on Turkey's two-year benchmark bond fell to 6.03 percent after Basci's comments from 6.13 percent before, although dealers said that was based on one trade in a very thin market. Yields had closed at 6.06 percent on Monday.


Pompeo says China is engaging in ‘predatory economics 101’

Would China have allowed America to do to it what China has done to America asked US Secretary of State Mike Pompeo. (AP)
Updated 18 June 2018
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Pompeo says China is engaging in ‘predatory economics 101’

  • He said China’s recent claims of “openness and globalization” are “a joke.”

DETROIT: China is engaging in “predatory economics 101” and an “unprecedented level of larceny” of intellectual property, Secretary of State Mike Pompeo told a business audience Monday.
Pompeo made the remarks at the Detroit Economic Club as global markets reacted to trade tensions between the US and China. Both nations started putting trade tariffs in motion that are set to take effect July 6.
He said China’s recent claims of “openness and globalization” are “a joke.” He added that China is a “predatory economic government” that is “long overdue in being tackled,” matters that include IP theft and Chinese steel and aluminum flooding the US market.
“Everyone knows ... China is the main perpetrator,” he said. “It’s an unprecedented level of larceny.”
“Just ask yourself: Would China have allowed America to do to it what China has done to America?” he said later. “This is predatory economics 101.”
The Chinese Embassy in Washington did not immediately respond to a request for comment.
Pompeo raised the trade issue directly with China last week, when he met in Beijing with President Xi Jinping and others.
“I reminded him that’s not fair competition,” Pompeo said.
President Donald Trump has announced a 25 percent tariff on up to $50 billion in Chinese imports. China is retaliating by raising import duties on $34 billion worth of American goods, including soybeans, electric cars and whiskey. Trump also has slapped tariffs on steel and aluminum imports from Canada, Mexico and European allies.
Wall Street has viewed the escalating trade tensions with wariness, fearful they could strangle the economic growth achieved during Trump’s watch. Gary Cohn, Trump’s former top economic adviser, said last week that a “tariff battle” could result in price inflation and consumer debt — “historic ingredients for an economic slowdown.”
Pompeo on Monday described US actions as “economic diplomacy,” which, when done right, strengthens national security and international alliances, he added.
“We use American power, economic might and influence as a tool of economic policy,” he said. “We do our best to call out unfair economic behaviors as well.”