I think you have been way too courteous with Emma Hanim. In my opinion, she deserves nothing but a good “Ottoman” slap on her butt with that ridiculous analysis. How can anyone, for God’s sake, claim that the average maturity of Turkish deposits has increased in this very short time span? For one, the Turkish monetary statistics are notoriously unreliable, especially during year-ends when banks do all sorts of tricks to inflate their asset sizes. One of the ways they achieve this is through establishing back-to-back inter-bank deposits. (During the last week of 2010, those deposits have increased by an “unbelievable” 35%, and then somehow (!) deflated to their original levels.) The other point is that it is almost an insult to Turkish depositors to think that they will be lured by a few basis points increase to put their money into longer maturity deposits, especially when the exchange rate is so volatile. As you mention, the credit side of Emma’s analysis is even more ambigous. She mentions that “three weeks ago, total lira loans fell 1.3 per cent in one week”, but somehow forgets to mention that just one week before that, they increased by an even more remarkable 2.2 per cent!
What is almost certain (out of this ambiguity) is that in order to be successful in curbing bank loans, CBT will need to raise required reserves at least 3-4 per cent more.
Sunday, February 13, 2011
I guess I am not the only one who questions the claim that the CBT's new policies are already taking their toll on deposits and. Reader R.Mutt (love the wordplay, R.Mutt==armut is pear in Turkish) who has her own Economics blog, although not yet in press, wrote the following as a comment to my post on whether data defy CBT doubters:
Crazyparent:):):) I love good old TGI Friday humor:) (that's when the reader sent this comment). But if I have any say in this, I would prefer Maddervish:):):). Anyway, the reader is perfectly right; I guess being called "ukala", "HBB" (her boku bilen) and "with an inflated ego" by my perennial spammer have made me a bit too careful with my criticisms:)
She is also right with her comments. Incidentally, I am continually visited by local bankers because of my moonlighting interests. When they hear I am a washed-up economist, they ask me my opinion of the Turkish economy and CBT policies. After teasing them that their local economist, whether it be Selim, Cevdet or whoever else he may be, would be pissed off if he heard they are asking the opinion of another economist (for some reason, banks have not been able to figure out how to make their economists accessible to the branches; I mean, I do not expect them to visit the branches every day, but how difficult could it be to have their reports forwarded to all the branches and prepare short recorded commentaries for the branches to listen into?- I know of just a couple of banks who do these, but enough of that, I am digressing), I also ask them a couple of things in return: Pricing for my favorite investment/bet of the year (you have to wait a few hours, until tomorrow's Hurriyet column for that) as well as how the Central Bank's policies are working out. The impression I have got is that R. Mutt is right: Deposits have lengthened only marginally until now.
As for R. Mutt's argument that required reserves would need to go up by 3-4 percent for the CBT to succeed in curbing bank loans: She may be right; I just don't know, but I am sure that more hikes are called for! I am working on credit demand and supply functions, and so far I found that a one unit increase in the interest rate decreases credit stock by 0.1 units. This is way too primitive to be reported. I have yet to incorporate the effect of liquidity on credit and the relationship between reserve requirements and interest rates. After all, reserve hikes work their magic through decreasing liquidity as well as (at least as the CBT hopes) increasing the lending rates and deterring credit. But I would say at least a couple of more percentage points hikes are needed, and if the CBT continues to provide liquidity through auctions and unsterilized FX buying (I said interventions in tomorrow's column, but it is not really intervention, I just did not want to use the word "auction" twice), even 3-4 percent may not be enough.
Anyway, my thanks go to R. Mutt for an excellent explanation on the ways of Turkish banks...