Yılmaz hopeful but cautious for growth
Güncelleme Tarihi:
Anatolia News Agency
Oluşturulma Tarihi: Mayıs 21, 2009 00:00
ISTANBUL - Central Bank Gov. Durmuş Yılmaz expects Turkey’s economy to rally before the global economy does. Domestic demand may gain stability in the second quarter of this year, Yılmaz says, predicting a return to positive growth in the last quarter
Turkey’s domestic demand is likely to gain relative stability in the second quarter of the year and may reach positive growth in the last quarter, according to the chief of the Central Bank.
Speaking late Monday in Istanbul at a meeting titled "The Global Financial Crisis and the Central Bank," Central Bank Gov. Durmuş Yılmaz expressed a cautious approach regarding the discourses that reveal an expectation to see the end of the global crisis in the short run.
A relative optimism has been ruling the financial markets in recent weeks, Yılmaz said. Considering financial institutions’ total losses have reached $2 trillion and continue to increase, there is not a high probability of a nearing permanent revival in global demand or of overcoming the tightness in financial institutions, and securing a climate of confidence, he said. "The optimism seen in global markets stems from not the positive data, but rather the data being not as negative as predicted."
When the global economy will start to rally is still a mystery, Yılmaz said, adding that the Central Bank expects the rally to take place gradually and slowly. He said a rapid rally is not expected in the private sector’s investment expenditures in the upcoming period, and that the negative course in the employment rate is likely to continue throughout the year.
Commenting on the developments experienced in the Turkish economy and the monetary policy implemented recently, Yılmaz said the 7.5 percentage point cut in policy rate has significantly helped ease the impacts of the excessive fluctuations in economic activities.
Ahead of the global economy
That the evident decline in benchmark interest rates and national debt interest rates was not proportionally reflected in loan interest rates results in the continuation of tightness in financial conditions, he said. "Following the cuts in the benchmark interest rate and the financial measures taken recently, we envisage that domestic demand may gain stability relatively during the second quarter of the year and growth may shift to positive figures as of the last quarter. We expect a rally in the economy to start before the global economy."
Defining the stable structure of the financial system and the low level of household debt ratio as two factors that support the prediction, Yılmaz said the process of overcoming the crisis will be slow and gradual, rather than foreseeing acceleration in aggregate demand for the short term.
Replying to questions, Yılmaz said the public sector was using more resources, and more indebtedness is not sustainable. Regarding the revision of growth, he said that in line with the changing climate, it was proper to revise the positive growth for this year’s budget from 4 percent to 3.6 percent. Such a move brings credibility for the government, he said.
Amid the crisis, every country will be affected by the risks stemming from derivatives, and this impact will affect other countries through three channels, namely trade, portfolio and loans, Yılmaz said. "I mistakenly expected loans to be more influential. The trade channel has proved to be the most influential." It may take three to nine months for interest rate cut decisions to affect the economy, he also said.
Central banks should not revise their targets constantly, Yılmaz said. "Central banks should pursue policies that will not require them to revise their targets. As inflation target is a commitment to society, a constant revision would erode confidence."
"The annual inflation target is 7.5 percent at present, but considering the various data at hand, we say that inflation will be below this target. Hence, in order not to increase the cost of inflation’s being below the target, we ease monetary policy."
Speaking late Monday in Istanbul at a meeting titled "The Global Financial Crisis and the Central Bank," Central Bank Gov. Durmuş Yılmaz expressed a cautious approach regarding the discourses that reveal an expectation to see the end of the global crisis in the short run.
A relative optimism has been ruling the financial markets in recent weeks, Yılmaz said. Considering financial institutions’ total losses have reached $2 trillion and continue to increase, there is not a high probability of a nearing permanent revival in global demand or of overcoming the tightness in financial institutions, and securing a climate of confidence, he said. "The optimism seen in global markets stems from not the positive data, but rather the data being not as negative as predicted."
When the global economy will start to rally is still a mystery, Yılmaz said, adding that the Central Bank expects the rally to take place gradually and slowly. He said a rapid rally is not expected in the private sector’s investment expenditures in the upcoming period, and that the negative course in the employment rate is likely to continue throughout the year.
Commenting on the developments experienced in the Turkish economy and the monetary policy implemented recently, Yılmaz said the 7.5 percentage point cut in policy rate has significantly helped ease the impacts of the excessive fluctuations in economic activities.
Ahead of the global economy
That the evident decline in benchmark interest rates and national debt interest rates was not proportionally reflected in loan interest rates results in the continuation of tightness in financial conditions, he said. "Following the cuts in the benchmark interest rate and the financial measures taken recently, we envisage that domestic demand may gain stability relatively during the second quarter of the year and growth may shift to positive figures as of the last quarter. We expect a rally in the economy to start before the global economy."
Defining the stable structure of the financial system and the low level of household debt ratio as two factors that support the prediction, Yılmaz said the process of overcoming the crisis will be slow and gradual, rather than foreseeing acceleration in aggregate demand for the short term.
Replying to questions, Yılmaz said the public sector was using more resources, and more indebtedness is not sustainable. Regarding the revision of growth, he said that in line with the changing climate, it was proper to revise the positive growth for this year’s budget from 4 percent to 3.6 percent. Such a move brings credibility for the government, he said.
Amid the crisis, every country will be affected by the risks stemming from derivatives, and this impact will affect other countries through three channels, namely trade, portfolio and loans, Yılmaz said. "I mistakenly expected loans to be more influential. The trade channel has proved to be the most influential." It may take three to nine months for interest rate cut decisions to affect the economy, he also said.
Central banks should not revise their targets constantly, Yılmaz said. "Central banks should pursue policies that will not require them to revise their targets. As inflation target is a commitment to society, a constant revision would erode confidence."
"The annual inflation target is 7.5 percent at present, but considering the various data at hand, we say that inflation will be below this target. Hence, in order not to increase the cost of inflation’s being below the target, we ease monetary policy."