Monday, April 25, 2011
I was having lunch on Friday with a group on non-Turkish economists interested in the Turkish economy. Based on their questions, I have chosen my favorite graphs of the Turkish economy.
I. Seeing the Central Bank's policies in action (all about interest rates):
The Central Bank borrowing and lending rates are natural bands for the overnight rate. If the Central Bank does not provide enough liquidity, the overnight rate will continuously hover above the policy rate, which kind of beats the goal of a volatile overnight to deter hot money.
If you want more on the Central Bank's policy dilemma, you can have a look at my post from last month, which has two complimentary graphs.
II. FX deposits and the exchange rate: Anyone who studies the Turkish economy sooner or later hears that FX deposits of residents act as a buffer against lira depreciation. Here's the appropriate graph:
There is a relationship, but it is not as strong as some people believe it to be. At the end of the day, it all depends on expectations, as well as the level at which locals bought their beloved foreign currencies. It is quite possible that if they expect more FX appreciation, they may want to hold on rather than engage in profit-taking.