January 28, 2011 at 11:46 pm | Posted in Economics, Financial, Research | Leave a comment









Turkish Economy

Yapi Kredi Macro Brief – Misforsta Meg Riktig

Eren Ocakverdi Eren.Ocakverdi@ykyatirim.com.tr

Fri, 28 Jan 2011

Misforsta Meg Riktig

Confusion regarding the latest round of policy announcements by the CBRT (Central Bank) has been so rampant and criticisms by market analysts so obnoxious from time to time that there obviously must be either a communication problem here and/or a competence problem regarding the agents in question (the CBRT and the market). We would hate to assume such incompetence on the part of market analysts, leaving ourselves out of the bunch to firmly secure our bet, and also believe that the CBRT is not indulging in a highly politicized or poorly designed experiment.

The uncertainty pertaining to the ultimate outcome of the experiment prevailed, and market analysts were puzzled by a statement in Governor Yilmaz’s speech in Euromoney Central and Eastern European Forum meeting in Vienna on January 18, 2011.

Here are some of the questions that market analysts are trying to come up with answers to: What do two interest rates mean? How can the Central Bank establish a two-tier or two-interest rate market?  These are indeed the initial questions that one feels exposed to when the above statement is taken at face value. The intent on the part of the CBRT, we believe, was actually the exact opposite.

There is obviously a high enough policy rate which through the transmission mechanism could be creating a dismal growth environment in which both price and financial stability will be achieved. The initial graph does indeed depict that situation. The establishment of financial stability through the policy rate is more than enough to establish price stability yet at the expense of dire growth consequences. Add to that the level of the exchange rate which will correspond to an overvalued currency due to the significant interest rate spread, and that is the second dose of salt in the dessert. Hence, a low growth-high exchange rate mix as a financial stability facilitator is ruled out at the outset as a viable option. That is precisely why the CBRT “experiment” indulged in an unorthodox mix of policies; to keep the dessert edible.

Author(s) Phone E-mail
Cevdet Akçay (Chief Economist) +90 (212) 319 84 30 cevdet.akcay@yapikredi.com.tr

Macro Briefs are also available at:


Turkish Economy

Yapi Kredi Macro Brief – Misforsta Meg Riktig

Eren Ocakverdi Eren.Ocakverdi@ykyatirim.com.tr

Fri, 28 Jan 2011


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