In the Summary of the Central Bank of the Republic of Turkey (CBRT) Monetary Policy Committee (MPC) Meeting, it was stated that “12-month cumulative current account deficit is expected to decrease in October with the continuing strong contribution of travel revenues.”
The summary of the meeting of the CBRT Monetary Policy Committee on November 21 has been published.
While the limited improvement in the global growth outlook continued in the second quarter of the year, the summary stated that the normalization trend in the supply-demand balance in the labor markets continued:
“The global growth index, weighted by the export shares of Turkey’s foreign trade partners, is estimated to grow by 2 percent in 2024, slightly above the 1.8 percent in 2023, and it is evaluated that global economic activity will continue its weak course. While the positive trend continues in the service sector, the manufacturing industry The weak outlook has been preserved. The US economy’s growth trend has continued to diverge positively from other developed countries. Commodity prices have fluctuated due to the global demand outlook, supply-side factors and geopolitical risks. “Uncertainties regarding global economic and trade policies and geopolitical developments are seen as prominent risk factors for the course of global economic activity.”
“THE DECLINE IN GLOBAL INFLATION CONTINUES”
In the summary, it was reported that the decline in global inflation continues, and the inflation rigidity in the services sector, although weakening, keeps the upside risks on inflation alive.
The summary stated that interest rate reduction processes continue in developed and developing countries (EMs), and that central banks will continue these processes in a way that preserves the positive trend in the inflation outlook and will follow a cautious approach.
In the summary, it was stated that portfolio outflows from developing countries’ markets have been observed recently due to global uncertainties.
The summary noted that, with the contribution of macroprudential policies that prioritize TL deposits, deposit interest rates did not show a significant change compared to the week of October 18 and stood at 56 percent as of the week of November 15, and included the following evaluations:
“In the same period, TL commercial loan interest rates (excluding overdraft accounts and credit cards) decreased by 382 basis points and reached 52.7 percent. On the retail side, consumer loan interest rates (excluding overdraft accounts) decreased by 70 basis points to 70.4 percent, while housing loans decreased by 70 basis points to 70.4 percent. Vehicle loan interest rates, which generally follow a fluctuating trend, decreased by 53 basis points and reached 40.7 percent as of November 15. has been formed.”
“2.35 BILLION DOLLARS OF NET PORTFOLIO INTRODUCTION TO DIBS MARKET HAS BEEN REALIZED”
In the MPC Meeting Summary, it was stated that the average of the 4-week growth rates of individual loans increased after October 18, from 2 percent to 2.3 percent, and that the rise in consumer and housing loan growth was effective in this increase.
In the same period, the average of the 4-week growth rates of TL commercial loans decreased from 2.3 percent to 1.1 percent, and the average of the 4-week growth rates of foreign currency (FC) commercial loans, adjusted for exchange rate effects, remained unchanged compared to the previous MPC period, at 1.5 percent. Thus, it was explained that commercial loan growth occurred under credit constraints.
In the summary, “Considering the increasing share of Turkish lira deposits, it was decided to take simplification steps within the macroprudential framework on November 22. In this context, the required reserve ratios applied to short-term TL deposit accounts were increased from 15 to 17 percent; while TL deposits for foreign currency deposits were increased from 15 percent to 17 percent.” The required reserve ratio was reduced from 5 percent to 4 percent. In addition, the target for legal entity TL deposits was abolished. “The total target for the transition and renewal of KKM to TL has been reduced from 75 percent to 70 percent.” statements were included.
In the summary, it is noted that the CBRT’s gross international reserves have decreased by 2.68 billion dollars since October 18, reaching 156.68 billion dollars as of November 15, and Turkey’s 5-year credit risk premium (CDS) has decreased by a limited amount since October 16, reaching 20 billion dollars. It was reminded that it reached 260 basis points as of November.
It was stated that the 1-month forward exchange rate volatility of the Turkish lira increased to 12.97 percent as of November 20, and the 12-month forward exchange rate volatility decreased to 22.22 percent, while 2.56 billion dollars have entered the Government Domestic Debt Securities (GDBS) market since the previous MPC meeting week. It was recorded that there was an outflow of 0.21 billion dollars from the stock market and a total net portfolio inflow of 2.35 billion dollars.
DEMAND AND PRODUCTION INDICES
In the summary, it was stated that retail and trade sales volume indices increased on a monthly and quarterly basis in September, that the quarterly increase in retail sales volume was more moderate when considered excluding gold, and that the service production index, which provides information about service production as well as demand, continued to decrease on a quarterly basis by declining in the third quarter.
The summary noted that the course of automobile and white goods sales in the third quarter points to a gradual slowdown in domestic demand, and the following statements were included:
“While expenditures made with cards were almost flat in October, data for the first week of November imply a limited decline. Survey data for manufacturing industry companies show that domestic market orders were weak in the fourth quarter, similar to the third quarter. In this context, high-frequency data and survey data “Indicators for the last quarter such as these imply that domestic demand continues to slow down and has reached levels that support the decline in inflation.”
“THE MONTHLY DECREASE IN INDUSTRIAL PRODUCTION IN AUGUST WAS LARGELY COMPENSATED IN SEPTEMBER”
In the summary, it was stated that in September, the industrial production index increased by 1.6 percent on a monthly basis, adjusted for seasonal and calendar effects, while it decreased by 2.4 percent on an annual basis, adjusted for calendar effects, thus the monthly decrease in industrial production in August was largely compensated for in September.
In the summary, which stated that industrial production decreased by 1.3 percent on a quarterly basis, the following evaluations were included:
“Excluding sectors exhibiting typical volatility, industrial production recorded a limited quarterly decline, but it is considered that the main trend of industrial production continued its weak course. The manufacturing industry capacity utilization rate continued its quarterly decline in the fourth quarter. Seasonally adjusted employment in September was at the level of 32.8 million people and increased by 0.4 percent on a quarterly basis. In this period, the labor force participation rate recorded a limited quarterly increase and the unemployment rate was at 8.7 percent. “Indicators point to a weak outlook in the future employment expectations of manufacturing industry companies.”
“CURRENT ACCOUNT BALANCE GAVE A SURPLUS OF 3 BILLION DOLLARS IN SEPTEMBER”
In the MPC Meeting Summary, it was reported that the current account balance gave a surplus of 3 billion dollars on a monthly basis in September, and the 12-month cumulative current account deficit decreased to 9.7 billion dollars with the contribution of retrospective upward revisions in travel revenues.
The improvement in the cumulative current account balance in September was influenced by the monthly decreases in the energy foreign trade deficit and gold foreign trade deficit, the 12-month cumulative foreign trade deficit excluding gold and energy increased compared to the previous month, the 12-month cumulative services balance surplus continued its strong course and reached 59.9 billion. It was stated that it increased to the dollar level.
In the summary, which noted that provisional foreign trade data indicated a limited decrease in exports and an increase in imports on a seasonally adjusted basis in October, the following statements were included:
“Looking at the 12-month cumulative basis, it is seen that the foreign trade balance has improved compared to the previous month. In this context, the 12-month cumulative current account deficit is expected to decrease in October with the continuing strong contribution of travel revenues. Gold imports were at the level of 1.7 billion US dollars in October While seasonally adjusted imports of consumer goods decreased compared to the previous quarter, they increased again in October. When the jewelry item, which has made a significant contribution to the increase in consumer goods imports in the recent period, is excluded, a more horizontal outlook is observed. When the provisional foreign trade data for October is evaluated together with the high-frequency leading data for November, the three-month average trends show that exports maintain their strength and imports increase. “These trends imply an increase in imports of consumer goods in November.”
In summary, on the financing side of the current account deficit, the 12-month cumulative long-term debt rollover ratio of the banking sector was around 140 percent in September, the said rate was approximately 112 percent for companies outside the banking sector, and in this context, foreign borrowing opportunities for other sectors other than banking were reduced to the previous level. It was emphasized that the improvement was observed compared to the previous month.
