Macroeconomic Outlook

and Monetary Policy in Turkey

3 September 2020 İstanbul

Outline

I. Macroeconomic Outlook

II. Monetary Policy and Financial Conditions

III. Overview

2
I. Macroeconomic Outlook
Economic Activity and External
Balance
 Economic activity contracted sharply in the second quarter due to the pandemic.
Gross Domestic Product (Seasonally and Calendar Adjusted, Chain-Linked Volume Index, 2009=100)

QoQ (right axis) Level

190 6

4
180
2
170
0
160 -2

150 -4

-6
140
-8
130
-10

120 -12
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2014 2015 2016 2017 2018 2019 2020

Source: TURKSTAT Last Observation: 2020 Q2

5
 Turkey outperformed many G20 countries in 2020 Q2.
2020 Q2 GDP Growth Rates (%, YoY, Seasonally Adjusted)

-5

-10

-15

-20

-25
Spain

United Kingdom

Italy

Eurozone
India*

Turkey

Indonesia
Canada
France

Brazil*

Japan

Russia*

Australia

S.Korea

China
Mexico

Germany

United States
Source: Bloomberg, IMF, OECD Last Observation: September 3, 2020

* Not seasonally adjusted.

6
 While the weakening in economic activity became more pronounced in April…

Industrial Production Index (Annual % Change) Industrial Production Index (Annual % Change)

IPI IPI (Calendar Adjusted) IPI IPI (Calendar Adjusted)

20
40
15
30
10
20
5
10
0
0
-5
-10
-10
-20
-15
-30
-20
-40
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
06.16

12.16

06.17

12.17

06.18

12.18

06.19

12.19

06.20

2015 2016 2017 2018 2019 2020

Source: TURKSTAT Last Observation: June 2020 Source: TURKSTAT Last Observation: June 2020

7
 …economic recovery has started as of May following gradual steps towards
normalization. 49

Capacity Utilization Rate (Seasonally Adjusted, %) Weekly Economic Conditions Index* (4-Week Moving Average)

85 2.0

1.0
80
0.0

75
-1.0

70 -2.0

-3.0
65
-4.0

60 -5.0
08.15

02.17
08.14

02.15

02.16

08.16

08.17

02.18

08.18

02.19

08.19

02.20

08.20

02.15
08.14

08.15

02.16

08.16

02.17

08.17

02.18

08.18

02.19

08.19

02.20

08.20
Source: CBRT Last Observation: August 2020 Source: CBRT Last Observation: August 21, 2020

(*) The index is constructed in a way that the mean and standard deviation of the index are 0 and 1, respectively. Index value shows the distance (high/low) from the mean in terms of the
standard deviation. 8
 Soft indicators signal a promising recovery in the manufacturing sector.
50

PMI Indices (Seasonally Adjusted Level) PUMAX* Industry and PUMAX Services (Seasonally Adjusted, 2-Month
Moving Average)

PMI PMI Production PUMAX_Industry PUMAX_Services

70 65

60 60

55
50
50
40
45
30
40

20 35

10 30
02.16
08.15

08.16

02.17

08.17

02.18

08.18

02.19

08.19

02.20

08.20

08.15

02.20
02.16

08.16

02.17

08.17

02.18

08.18

02.19

08.19

08.20
Source: IHS Markit Last Observation: August 2020 Source: MÜSİAD Last Observation: August 2020

(*) PUMAX: MÜSİAD Purchasing Manager Index

9
 The improvement in confidence and activity is relatively strong compared to both
developed and developing economies.
Manufacturing Sector Confidence Index in Europe (Deviation from the Manufacturing PMI (Seasonally Adjusted)
Average, Seasonally Adjusted)*
Turkey EU Turkey Average of Other Selected Developing Countries**
40 60

30
55
20
50
10

0 45

-10 40
-20
35
-30
30
-40

-50 25

01.16
07.11
01.12
07.12
01.13
07.13
01.14
07.14
01.15
07.15

07.16
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
08.07

08.20
08.08

08.09

08.10

08.11

08.12

08.13

08.14

08.15

08.16

08.17

08.18

08.19

Source: EU Commission Last Observation: August 2020 Source: Markit Last Observation: July 2020

*Range shows the maximum and minimum values for the European countries. Average is calculated over January 2007-July 2020.
** Selected developing countries are Brazil, China, India, Indonesia, Mexico and Russian Federation. 10
 Health care system in Turkey proved its capability to overcome difficulties
stemming from rising COVID-19 cases.
Total COVID-19 Deaths Per Million People New COVID-19 Cases Per Million People (7-Day Moving Average)
700 250

600

200
500

400
150
300

200
100
100

0 50
India

Italy
United Kingdom
Indonesia

Turkey
South Korea

Saudi Arabia

Russia
Argentina
South Africa
China

Japan

Canada

Mexico

Brazil
Australia

Germany

France

United States

TURKEY

0
01.20 02.20 03.20 04.20 05.20 06.20 07.20 08.20
Last Observation: August 29, 2020
Source: Ourworldindata

11
 Health care system in Turkey proved its capability to overcome difficulties
stemming from rising COVID-19 cases.
Case Fatality Rates of G-20 Countries (%) Recovered / Total Cases of G-20 Countries (%) Number of ICU Beds of G-20 Countries* (per 100,000
Population)
14 1 50

0.9
12
0.8 40
10
0.7

8 0.6 30

0.5
6
0.4 20
4 0.3

2 0.2 10
0.1
0
0
India

Italy
Turkey

United Kingdom
Saudi Arabia

Russia

Brazil

Indonesia
South Korea

Japan
Argentina
South Africa

China
Germany

Canada
Mexico
Australia

United States

France

India
Italy
Turkey
Saudi Arabia

Russia

Indonesia
Brazil
South Africa
Japan

South Korea
Argentina
China

Germany
Canada

Mexico
Australia

United States
France

India

United Kingdom

Italy
Indonesia

Argentina

Turkey
South Africa

Russia

Brazil

Saudi Arabia
China
Japan

Canada

South Korea
Mexico

Australia

United States

Germany
France
Source: Ourworldindata Last Observation: August 29, 2020 Source: Worldometers Last Observation: August 29, 2020 Source: Ourworldindata, Public Authorities Last Observation: August 2020

*Capacity of Intensive care unit (ICU) beds can play a crucial role in tackling the pandemic. This gains importance in terms of the rapidness and efficiency of the response to the
critical cases, contributing to the fight against the epidemic more effectively and much lower number of casualties. Data for each country represents the latest value available. 12
 Unemployment rates increased during the pandemic.

Unemployment Rates (Seasonally Adjusted, %)

Unemployment Rate Non-Farm Unemployment Rate

18

16

14

12

10

6
05.15
05.12

11.12

05.13

11.13

05.14

11.14

11.15

05.16

11.16

05.17

11.17

05.18

11.18

05.19

11.19

05.20
Source: TURKSTAT Last Observation: May 2020*

(*) Covers the April-May-June period.

13
 While global economic outlook restrains external demand…

Eurozone PMI (Level)

Composite Manufacturing Services

70

60

50

40

30

20

10

0
07.07

07.08

07.09

07.10

07.11

07.12

07.13

07.14

07.15

07.16

07.17

07.18

07.19

07.20
Source: IHS Markit Last Observation: August 2020

14
 …improved competitiveness continues to support external balance.
51

Real Effective Exchange Rate (CPI-Based, 2003=100 )

130

120

110

100

90

80

70

60

07.16
07.03

07.04

07.05

07.06

07.07

07.08

07.09

07.10

07.11

07.12

07.13

07.14

07.15

07.17

07.18

07.19

07.20
Source: CBRT Last Observation: July 2020

15
 Exports display a stronger rebound than previously envisaged.

Exports (Billion USD, Seasonally Adjusted) Imports (Billion USD, Seasonally Adjusted)

Exports Exports (excl. gold) Imports Imports (excl. gold) Imports (excl. gold and energy)

16 24
15 22

14 20
18
13
16
12
14
11
12
10 10
9 8
8 6
08.18
08.16
11.16
02.17
05.17
08.17
11.17
02.18
05.18

11.18
02.19
05.19
08.19
11.19
02.20
05.20
08.20

05.17

02.18
08.16
11.16
02.17

08.17
11.17

05.18
08.18
11.18
02.19
05.19
08.19
11.19
02.20
05.20
08.20
Source: CBRT, TEA Last Observation: August 2020 Source: CBRT, Ministry of Trade Last Observation: August 2020

16
 The recovery in exports of goods with the ongoing normalization and low levels
of commodity prices will support the current account balance.
Current Account Balance (12-Month Cumulative, % of GDP)
CAB/GDP CAB/GDP (excl. gold)
4

-2

-4

-6

-8

-10
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: CBRT Last Observation: 2020 Q2

17
 Trade deficit has started to narrow down as import-coverage by exports
returned to pre-pandemic levels after April.
Exports-to-Imports Ratio* (Excluding Gold %)

Seasonally Adjusted Not Seasonally Adjusted Average (2013-2020)

110

100

90

80

70

60

50

40
08.14

04.18
08.13

12.13

04.14

12.14

04.15

08.15

12.15

04.16

08.16

12.16

04.17

08.17

12.17

08.18

12.18

04.19

08.19

12.19

04.20

08.20
Source: TURKSTAT, CBRT, Ministry of Trade Last Observation: August 2020

* GTS data
18
 Deleveraging in the corporate sector continues.

External Debt Rollover (3-Month Moving Average, %)

Banking Sector Non Banking Sector*

160

140

120

100

80

60

40
03.13

03.17
03.10

09.10

03.11

09.11

03.12

09.12

09.13

03.14

09.14

03.15

09.15

03.16

09.16

09.17

03.18

09.18

03.19

09.19

03.20
Source: CBRT Last Observation: July 2020

(*) Non-banking sector data is as of June 2020.

19
 The CBRT reserves cover total short-term FX financial debt repayments.

Short Term External FX Financial Debt* (Remaining Maturity, Billion USD) CBRT Reserves (Billion USD)

CBRT Reserves; 88.7

90

CENTRAL BANK 19.6 80

GENERAL GOVERNMENT 5.7 70

Gold;
BANKS 42.7
43.3 60
CREDITS 32.3
50
BANKS ACCOUNTS 10.4
40
OTHER SECTORS 19.7

OTHER CREDITS 19.7 30

FX Reserves;
PUBLIC 1.3 45.4 20

PRIVATE 18.4 10
TOTAL 87.7
0

Source: CBRT (Short Term External Debt Statistics) Last Observation: June 2020 Source: CBRT Last Observation: August 21, 2020

(*) Short Term FX External Debt table is derived from Short Term External Debt Statistics, Table 5 (Short-Term External Debt Stock on a Remaining Maturity Basis). It excludes FX
deposits of non-resident real and legal persons (excluding banks), FX deposits in resident banks, TRY deposits and trade credits of the corporate sector. 20
 Banks maintain ample FX liquidity buffers to cover short-term external debt.

Banks’ Short Term FX External Debt and FX Liquid Assets* (Billion USD)
90

80
Eurobond; 13
70
Cash; 7
60
Foreign free; 10
ROM; 3 50

40

30
FX Reserve Requirement; 48
Debt due in 1-year; 42.7 20

10

0
FX Liquid Assets

Source: CBRT Last Observation:August 21, 2020

(*) Banks’ short term external debt data is as of June 2020. Eurobond, cash, foreign free, FX Reserve Requirement and ROM data is as of August 21. Gold Reserve
Requirement is included in FX Reserve Requirement figure.
21
Inflation
 Inflation displayed a downward trend following the monetary tightening.

CPI and Core Inflation Indicator (B)* (Annual % Change)

CPI B
27

24

21

18

15

12

3
11.17
08.17

02.18

05.18

08.18

11.18

02.19

05.19

08.19

11.19

02.20

05.20

08.20
Source: TURKSTAT Last Observation: August 2020

(*) CPI excluding unprocessed food, energy, alcoholic beverages tobacco and gold.
23
 Pandemic-related rise in unit costs and accumulated exchange rate effects led
to some increase in the trends of core inflation indicators.
Core Price Indexes B and C (Seasonally Adjusted, Annualized, 3-Month Subgroups of B Index (Seasonally Adjusted, Annualized, 3-Month Average %
Average % Change) Change)
B B (Adjusted for Tax Effect) C (Adjusted for Tax Effect) Core Goods (Adjusted for Tax Effect) Services Processed Food
60 100

50
80

40
60
30
40
20
20
10

0
0

-10 -20

07.17

11.17

03.18

07.18

11.18

03.19

07.19

11.19

03.20

07.20
08.19
08.17

12.17

04.18

08.18

12.18

04.19

12.19

04.20

08.20

Source: CBRT, TURKSTAT Last Observation: August 2020 Source: CBRT, TURKSTAT Last Observation: August 2020

24
 Inflation is expected to decline over the medium-term.
52
July Inflation Report Forecasts for Inflation and Output Gap*

Forecast Range Realization Uncertainty Band Inflation Targets Output Gap Year-end Inflation Forecast (Mid-point)
30
Control Horizon
26

22

18

14

10
8.9
6.2 6
5.1
2

-2

-6

-10
09.19
06.19

12.19

03.20

06.20

09.20

12.20

03.21

06.21

09.21

12.21

03.22

06.22

09.22

12.22

03.23

06.23
Source: July 2020 Inflation Report

(*) Shaded area denotes the 70 percent confidence interval for the forecast. 25
 Inflation expectations for the medium-term increased slightly.

Inflation Expectations (%) Distribution of Inflation Expectations (12-Months)

12 Months 24 Months 5 Years 10 Years July 2019 July 2020 August 2020
19 0.6

17
0.5
15
0.4
13

11 0.3

9 0.2

7
0.1
5
08.15
08.14

02.15

02.16

08.16

02.17

08.17

02.18

08.18

02.19

08.19

02.20

08.20
0.0
4 6 8 10 12 14 16 18 20

Source: CBRT Last Observation: August 2020 Source: CBRT Last Observation: August 2020

26
 Market-based measures of inflation expectations have increased recently.
Inflation Compensation (5-Day Moving Average, %)

2-Year Inflation Compensation 10-Year Inflation Compensation

30

26

22

18

14

10

10.19
01.18

02.18
03.18

04.18

05.18

06.18

07.18

08.18

09.18

10.18

11.18

12.18

01.19

02.19
03.19

04.19

05.19

06.19

07.19

08.19

09.19

11.19

12.19

01.20

02.20

03.20

04.20

05.20

06.20

07.20

08.20

09.20
Source: Bloomberg Last Observation: September 1, 2020

27
II. Monetary Policy and Financial
Conditions
 CBRT took several tightening steps through liquidity measures in August.

► Targeted additional liquidity facilities started to be gradually phased down.

► Liquidity limits offered to Primary Dealers in the framework of OMOs first reduced to half of their
limits, and later reduced to zero.
► CBRT started conducting repo auctions via the traditional auction method.
► Banks’ borrowing limits at the CBRT for O/N transactions reduced to half of their limits.
► TL and FX reserve requirement ratios raised for banks fulfilling real credit growth conditions.

29
 In August, the CBRT kept the policy rate unchanged while taking a series of
liquidity measures.
Short Term Interest Rates (%)

Interest Rate Corridor CBRT Average Funding Rate 1 Week Repo Rate BIST O/N Repo Rate (5-Day MA)
27

24

21

18

15

12

6
06.19

03.20
01.19

02.19

03.19

04.19

05.19

07.19

08.19

09.19

10.19

11.19

12.19

01.20

02.20

04.20

05.20

06.20

07.20

08.20

09.20
Source: BIST, CBRT Last Observation: September 1, 2020

30
 Yield curve shifted up at all maturities.

Yield Curve (Government Bond, %)

01-Sep-20 29-Jul-20

14

13

12

11

10

7
12 24 36 48 60 84 120
Term (Month)

Source: Bloomberg Last Observation: September 1, 2020

31
 Lending and deposit rates have increased after tightening steps by CBRT.

TL Loan and Deposit Rates* (%)

Commercial Loans General Purpose Consumer Loans Deposits

45

40

35

30

25

20

15

10

5
03.17

06.17

09.17

12.17

03.18

06.18

09.18

12.18

03.19

06.19

09.19

12.19

03.20

06.20
Source: CBRT Last Observation: August 21, 2020

(*) TL commercial loan rate series excludes overdraft accounts, credit cards and zero-rate loans. General purpose consumer loan rate series excludes overdraft account rates.
32
 Annual loan growth has started to flatten.

Annual Change (Adjusted for Exchange Rate Effect, %)

Commercial Consumer Total

70

60

50

40

30

20

10

-10
03.17

06.17

09.17

12.17

03.18

06.18

09.18

12.18

03.19

06.19

09.19

12.19

03.20

06.20
Source: CBRT Last Observation: August 28, 2020

33
 The recent loan growth momentum has slowed down.

Total Loan Growth (Adjusted for Exchange Rate Effect, Annualized 13-Week Growth, %)

2012-2018 Average 2019 2020

60

50

40

30

20

10

-10

-20
Mar

May

Jun

Sep
Jul

Oct
Jan

Feb

Apr

Agu

Nov

Dec
Source: CBRT Last Observation: August 28, 2020

34
 Banking sector NPL ratios have eased on the back of regulatory forbearance
measures and strong credit growth.
Banking Sector NPL Ratios (%)

Total Commercial Retail

8

04.14
12.05

10.06

08.07

06.08

04.09

02.10

12.10

10.11

08.12

06.13

02.15

12.15

10.16

08.17

06.18

04.19

02.20
Source: CBRT Last Observation: August 28, 2020

35
 01.14

04.14

Source: CBRT
07.14

10.14

01.15
Capital Adequacy Ratios (%)

04.15

07.15

10.15

01.16

04.16
CET1

07.16

10.16
Banks have strong capital buffers.

01.17

04.17

07.17

10.17

01.18

04.18
Total

07.18

10.18

01.19

04.19

07.19

10.19

01.20

04.20

07.20
36
10
12
14
16
18
20

Last Observation: July 2020

 Loan growth is mainly funded by deposit growth since 2018.

Loan/Deposit Ratio*(4-Week Moving Average, %) Loan and Deposit Growth (%)

Loan Deposit
120 46

115 37

110 28

105 19

100 10

95 1

90 -8

03.17

06.17

09.17

12.17

03.18

06.18

09.18

12.18

03.19

06.19

09.19

12.19

03.20

06.20
02.17

06.17

10.17

02.18

06.18

10.18

02.19

06.19

10.19

02.20

06.20

Source: CBRT Last Observation: August 28, 2020 Source: CBRT Last Observation: August 28, 2020

(*) Investment and development banks are excluded.

37
III. Overview
 Overview
► Economic recovery, which started in May following gradual steps towards normalization, is gaining pace.
► Monetary and fiscal measures contributed to financial stability and economic recovery by supporting the potential output of the
economy.
► Although tourism revenues declined due to the pandemic, easing of travel restrictions has started to contribute to a partial
improvement.
► The recovery in exports of goods, relatively low levels of commodity prices and the level of the real exchange rate will support the
current account balance in the upcoming periods.
► Along with the pandemic-related rise in unit costs, exchange rate and credit developments restrain the demand-side disinflationary
effects, and the trends of core inflation indicators have increased.
► As the normalization process continues, supply-side factors, which have prevailed recently due to pandemic-related restrictions, will
phase out.
► The gradual normalization of pandemic-specific financial measures and recent tightening steps taken in the framework of liquidity
management are judged to support macrofinancial stability.
► However, depending on the course of the pandemic, uncertainties regarding domestic and external demand conditions remain
significant. Accordingly, the CBRT decided to keep the policy rate unchanged in August, while continuing with liquidity measures.
► The Central Bank will continue to use all available instruments in pursuit of the price stability and financial stability objectives.

39
 Macroeconomic Outlook
and Monetary Policy in Turkey

3 September 2020 İstanbul

Appendix (1): Policy Response
In addition to interest rate cuts, the CBRT has implemented a comprehensive
set of measures.

Enhancing predictability and flexibility in Rediscount credit regulations to

Turkish lira and FX liquidity management support cash flow of exporting firms

Providing targeted additional liquidity

facilities to banks to secure uninterrupted Supporting the Government Domestic
credit flow to corporate sector Debt Securities (GDDS) market liquidity

42
In addition to interest rate cuts, the CBRT has implemented a comprehensive
set of measures.

Enhancing predictability and flexibility in

Turkish lira and FX liquidity management

► As much liquidity as needed by banks will be provided through intraday and overnight standing facilities.
► In addition to one-week repo auctions, the CBRT’s main policy instrument, the Bank may inject liquidity to the market
through repo auctions with maturities up to 91 days on the days needed.
► To support the Primary Dealership System, liquidity limits of Primary Dealers in the framework of Open Market Operations
(OMOs) have been increased.
► Conventional (multi-price) swap auctions with maturities of one, three and six months, which are currently available against
US dollars, may also be held against euros and gold.
► Swap auction limits are raised from 20% to 30% of the Foreign Exchange and Banknotes Market limits.
► Under the Turkish lira and foreign exchange operations, the asset-backed securities (ABS) and mortgage-backed securities
(MBS) are also included in the collateral pool.
► The aim is to increase the liquidity of similar securities issuances, enable deepening of capital markets and diversify the
liquidity facilities that banks can use.
► When accepting eligible securities as collaterals, discounts will be applied at different rates depending on credit scores given
by national or international credit rating agencies, credit rating outlook, and remaining maturities.
► In addition, the share of these securities in total collaterals is limited to 10%.

43
In addition to interest rate cuts, the CBRT has implemented a comprehensive
set of measures.

Providing targeted additional liquidity

facilities to banks to secure uninterrupted
credit flow to corporate sector

► The maximum amount of funds that an eligible bank may receive from this new liquidity facility will be linked to the amount
of credit that this bank has already provided or will provide for the corporate sector.
► Turkish lira liquidity will be provided via repo auctions with maturities up to 91 days with an interest rate 150 basis points
lower than the one-week repo rate, i.e. the CBRT’s policy rate, and with quantity auction method.
► Turkish lira currency swap auctions with a maturity of 1 year based on quantity auction method will be conducted. With
these swap auctions, related banks will be provided with Turkish lira liquidity against US dollars, euros and gold with an
interest rate 100 basis points lower than the one-week repo rate, i.e. policy rate.
► Additionally, through swap auctions with six-month maturity, related banks will be provided with Turkish lira liquidity against
US dollars, euros or gold, at an interest rate 125 basis points lower than the one-week repo rate.
► Within the context of the reserve requirement practice that is based on real credit growth, the FX reserve requirement ratios
are reduced by 500 basis points across all liability types and all maturity brackets for banks that meet the conditions.
► With this decision, the banks that meet real credit growth conditions will be provided with FX and gold liquidity at the
amount of approximately USD 5.6 billion.

44
In addition to interest rate cuts, the CBRT has implemented a comprehensive
set of measures.

Rediscount credit regulations to support

cash flow of exporting firms

► The maturities for repayments of rediscount credits, which will be due from 18 March 2020 to 30 June 2020, can be
extended by up to 90 days.
► This can postpone the repayment of rediscount credits corresponding up to USD 7.6 billion.
► An additional 12 months export commitment fulfillment time has been offered for the rediscount credits whose export
commitment has not been fulfilled yet and for the rediscount credits to be used from 18 March 2020 to 30 June 2020.
► The maximum maturities for rediscount credits have been extended to 240 days from 120 days for short-term credit
utilization, and to 720 days for longer-term credit utilization.
► To facilitate goods and services exporting firms’ access to finance and support sustainability of employment, Turkish lira-
denominated rediscount credits for export and foreign exchange earning services will be extended up to a total limit of TRY
60 billion.
► The interest rate for the TL denominated rediscount credits will be 150 bp lower than the one-week repo rate and the
maximum commission rate of intermediary banks will be 150 bp.

45
In addition to interest rate cuts, the CBRT has implemented a comprehensive
set of measures.

Supporting the Government Domestic

Debt Securities (GDDS) market liquidity

► Considering that a probable decline in the GDDS market depth and an unhealthy pricing environment may weaken the
monetary transmission, CBRT decided to support the GDDS market liquidity.
► Outright purchase operations under the Open Market Operations (OMO) portfolio, which are conducted within the limits
identified at the Monetary and Exchange Rate Policy for 2020 text, can be carried out in a front-loaded manner and these
limits may be revised.
► Additionally, to contain the likely impacts of the GDDS sales of the Unemployment Insurance Fund on financial markets, for a
temporary period, the Primary Dealer banks are allowed to sell the GDDS that they have bought from the Unemployment
Insurance Fund to the CBRT or to increase at certain ratios the repo facility offered in the scope of the Primary Dealership
system.
► This step is intended only for this extraordinary period shaped by the pandemic and it should not be interpreted as an
unlimited asset purchase or monetary financing.
► The maximum limit for the ratio of the nominal size of the OMO portfolio to the total assets in the CBRT analytical balance
sheet has been increased to 10% from 5%.
► The limits offered to PD banks for outright sales of GDDS to the CBRT will be applied independent of the repo transaction
limits and that PD banks will be offered a GDDS selling limit that is equal to the repo transaction limits.

46
Appendix (2): Additional Slides
 There was a sharp contraction in economic activity, driven by both domestic and
foreign demand.
Contributions to Annual GDP Growth from the Expenditure Side (% Point) Contributions to Quarterly GDP Growth from the Expenditure Side (% Point)

Private Consumption Public Consumption Investments Private Consumption Public Consumption Investments
Net Exports Change in Inventories GDP Net Exports Change in Inventories GDP
15 10

10
5
5

0 0

-5
-5
-10
-10
-15

-20 -15
2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020

Source: CBRT Last Observation: 2020 Q2 Source: CBRT Last Observation: 2020 Q2

.
48
 Economic recovery has started as of May following gradual steps towards
normalization.
8
Weekly Economic Conditions Index (WECI)*
BEFORE THE OUTBREAK PREVENTIVE MEASURES PARTIAL NORMALIZATION NORMALIZATION

1.5
Curfews imposed
during the feast
0.5

-0.5

-1.5

-2.5

-3.5

-4.5

-5.5

15.05.20
07.02.20

14.02.20

21.02.20

28.02.20

06.03.20

13.03.20

20.03.20

27.03.20

03.04.20

10.04.20

17.04.20

24.04.20

01.05.20

08.05.20

22.05.20

29.05.20

05.06.20

12.06.20

19.06.20

26.06.20

03.07.20

10.07.20

17.07.20

24.07.20

31.07.20

07.08.20

14.08.20

21.08.20
Source: CBRT Last Observation: August 21, 2020

(*) The index is constructed in a way that the mean and standard deviation of the index are 0 and 1, respectively. Index value shows the distance
(high/low) from the mean in terms of the standard deviation. 49
 Soft indicators signal a promising recovery in the manufacturing sector.
9
Industrial Production Index (3-Month Moving Average, Annual % Change) and PMI (Level)**

PMI (right axis) IP

20 60

10 55

0 50

-10 45

-20 40

-30 35

-40 30
07.15

01.16

07.16

01.17

07.17

01.18

07.18

01.19

07.19

01.20

07.20
Source: IHS Markit, TURKSTAT **Last Observation: July 2020 for PMI;
June 2020 for IPI

50
 Exports to non-European countries have reached pre-pandemic levels.
15
Exports* (Billion USD, Seasonally Adjusted)
European Countries Excluding European Countries
9

08.20
08.15

02.16

08.16

02.17

08.17

02.18

08.18

02.19

08.19

02.20
Source: TCMB, TİM Last Observation: August 26, 2020

* Forecast value for August is calculated using the implied value of exports as of August 26, 2020.
51
 Inflation is expected to decline over the medium-term.
July Inflation Report Forecasts for Core Indicator-B and Output Gap* 25

Forecast Range Realization (B-Index) Output Gap

30

26

22

18

14

10

-2

-6

-10
06.19

09.19

12.19

03.20

06.20

09.20

12.20

03.21

06.21

09.21

12.21

03.22

06.22

09.22

12.22

03.23

06.23
Source: July 2020 Inflation Report

(*) Shaded area denotes the 70 percent confidence interval for the forecast. 52