Tuesday, May 17, 2011

I really seem to have found my niche...

...in the popularity department that is: Unless I write a controversial column, I seem to have settled down in the lower parts of Hurriyet Daily News & Economic Review's top-10 rankings:
I got quite  a few comments with this one as well....
...although most comments weren't all that positive:) In fact, they were positive- in the sense that I learned that I have readers who care enough to tell me that they are disappointed with the column. And I appreciate all feedback, so I was happy at the end of the day:) As for the critiques, as I mentioned earlier, I will be addressing them in an extensive addendum in the next few days.


Anonymous said...

Dear Mr Deliveli,

I would like to ask a question about monetary policy, a topic which you did not cover recently.

According to Fatih Özatay here: http://www.tepav.org.tr/en/kose-yazisi/s/2435 , the interbank interest rate is actually higher than the policy rate. But then doesnt the policy mix of the Central Bank work? Are they not successful in making credit more expensive?

Or if they are, at least by this 30-50 bps, and credit expansion is still not slowing, shouldn't they raise RRRs or/and the policy rate even more? These written above is the first cloud of my questions.

The second is: if the CBT really wants credit expansion to slow, why is it at all engaging in open-market operations? Why is it not starving commercial banks out of money to lend? I think that solution kind of looks like the most common sense one... Or is there a legal obligation to provide liquidity for the banks at the repurchase rate?

Thank you,

Emre Deliveli said...

Dear LG;

These are great questions, which need to be addressed in a separate post, or even Daily News column. Which I will do...

However, I will be migrating this blog to Nouriel Roubini's web site in the next couple of days, and I want to start off strongly there, so I might save it for a few days to post there, but you will definitely get a detailed response from me.

But please note that you have already answered part of your questions: "if the CBT really wants credit expansion to slow, why is it at all engaging in open-market operations?" If it doesn't, the overnight will rise, but by doing it, it is shooting itself in the leg. This is one of the dilemmas of Central Bank's policy mix that many economists have highlighted...

Anonymous said...

Dear Mr Deliveli,

I think I get what you mean. Not providing enough liquidity results in the interbank interest rate being over the policy rate continously, which is actually accomodative of hot money.

On the other hand, it seems the market did not realize this situation yet, as the lira has depreciated sharply and still did not recover its strength. So at least from that perspective the policy of the CBT is successful, and the question is really that of "visibility" on the radar of the market.

If we consider the aim of slowing credit expansion, and thereby decreasing the current account deficit, and this intention is honest, then big interest rate hikes should be on their way, shouldn't they?

At least this is how I understand the situation now. Though if they raise rates, more inflow is expected, which makes lira stronger, thereby making the CA deficit bigger.

Looks like an unescapable dilemma.

Emre Deliveli said...

Dear LG;

You are right on track. In fact, just because of the reason you have sketched, many economists consider fiscal restraint as a much better tool in combating current account deficits. For example, see here:


Anonymous said...

Dear Mr Deliveli,

I see. Then interest rate hikes will follow after the elections, in tandem with fiscal restraint and maybe structural reforms.

They are not going to do that earlier in order to make it easier for AKP to win.

Actually, isn't here some risk to that approach? I have no data on how much "hot money", whatever that is, is in Turkey, but surely it will exit quite soon if there are no steps to control the dangers which were put in spotlight by the CBT itself. Then indeed there could be destabilizing effects.

Do you think officials know about this risk, and have the competence to act accordingly?


ps.: Good luck in your migration. Though I like Blogger's easy interface. Will you keep here what you have already written?

Emre Deliveli said...

You are on the right track again, as many economists are worried about such a sudden exit. What is making matters worse is that the Central Bank has really decreased communication with investors with its new policies, i.e. no more private meetings.

BTW, I would tie the lira weakness of Turkey's risks rather than CBT's success. The CBT was successful as well, but not directly through the policies, but by creating an environment of uncertainty and confusion through its policies.

As for your comment on hot money, look at the BOP data on CBT web page for short-term capital flows, but the real hot money CBT is worried about, i.e. money parking at the overnight, is not there. You'd have to look at banks' off-balance sheet positions, published by the banking regulator, BRSA, as well as the CBT (Thursday's weekly bulletin), for that, as those positions would have to go through banks... Hmmm, I should do a column on hot money one of these days...

Thanks for the "good luck" wishes. I agree that Blogger is simpler, but Wordpress is a much more powerful tool; I have never used it before, so hopefully, the migration will not be very painful. But I am migrating not because of the Wordpress, but because taking part in the new Roubini venture would be interesting. And honestly, I am sick of my Turkey-based readers not being able to read me from time to time because of those occasional Blogger bans. And I am keeping everything I have written here, and may even back up my Roubini stuff here from time to time as well. But I will also be exporting all my posts here to the Roubini site tomorrow.

Anonymous said...

Dear Mr Deliveli,

I have had a longer session spent reading your blog. I think I found a good summary of "hot money" in your links here:


Probably there is more up-to-date data about that, though not in such an easy to consume format. I would welcome such a measure in your soon-to-be-published articles at the Roubini site.

Regarding the CBT's success, indeed, I was also trying to refer to its "unintelligible", or as you have called it, confuzzling policy mix as a key to it. Though I wonder, if the market is beginning to recognize the illusionary nature of the situation, does it not begin to bring money to Turkey again?

Finally, I was pondering if this whole detour from normal monetary policy was useless or not. After all, credit expansion could continue seamlessly, propping up the CA deficit. This means that the policy did not, could not achieve its declared goal.

On the other hand, the fact that the source of liquidity was the Central Bank can make a huge difference, because if the Turkish banking sector is largely Turkish-owned (which I have no information about), then it was sort of a redistribution of interest income away from foreigners to domestic legal and natural persons.

If so, the new monetary policy was sort of a trick pulled out in order to both support the AKP reelection and the Turkish banking sector, or certain parts of it. A look at the composition of the repo operations should be instructive [which banks get the scarce 6,25% rate].

But maybe this "theory" has a false start.

Emre Deliveli said...

Hello again;

Just to let you know that I wrote on the monetary policy over at my new blog:


Also, I found your final comments very interesting, but I have not been able to think through them thoroughly...