Global economic recovery was strongly felt in 2010, both in Turkey and in the world
Strong economic activity was primarily driven by extremely loose monetary policies implemented by the central banks of developed countries, especially the FED (Federal Reserve), through bond purchase programs.

The global growth rate, which was 4.8% in 2010, is expected to slow down slightly to just under 4% in 2011. Despite the prospect of slow growth in the USA and European countries, Germany has been demonstrating strong economic growth, along with Asian countries, excluding Japan, and emerging market economies such as Turkey. During this period, liquidity provided by the central banks of developed countries has headed to developing countries, lured by high returns and the growth potential in these countries.

Turkey’s GDP is estimated to have grown by more than 8% in 2010
Turkey’s economy steamed ahead with a double-digit GDP growth rate in the first half of 2010 with the support of the base effect, while the growth rate fell to 6% in the second half of the year as the base effect was gradually eliminated. For 2010 as a whole, Turkey’s GDP growth rate is forecasted to come in at 8.2%.

Turkey is expected to maintain its strong growth in the first half of 2011, with GDP on course to grow by 5% in 2011.

With the correction observed in food prices in the last quarter, the year-end annual inflation rate was 6.4%, a figure compatible with CBT’s target
The annual inflation rate may fall to below 5% in the first quarter of 2011, thanks to a fall in prices on a yearly basis in 2011 as the lower monthly inflation rates will be taken into account, instead of the monthly inflation rate which rose in the first two months of 2010 due to tax increases applied in the beginning of the year, as well as high food prices.

From April onwards, however, inflation expectations are more negative, in parallel with the removal of the base effect, and with inflation creeping back up again due to loose monetary and financial policies. As such, the annual rate of inflation is expected to reach 7% once again towards the end of the year.

The CBT maintained its overnight borrowing interest rate, which is also its policy interest rate, steady at 6.5% until May 2010. The CBT then began to determine its policy interest rate depending on liquidity conditions and based on the Repurchase Tender interest rate with a 1 week maturity, which was 7% at that time. In order to curtail the increase in capital inflows, in November the CBT cut the overnight borrowing interest rate to 1.75% while keeping the policy interest rate on hold. This paved the way for a downward volatility in short term interest rates, while the TL became less attracted to foreign investors with a short-term investment horizon. In December, the CBT initiated a series of new cuts in policy interest rates. In addition to interest rate cuts, the CBT began raising banks’ required reserve ratios in a bid to limit the expansion of credit volume.

Exchange rates moved in line with global risk appetite, while borrowing costs moved in parallel with the monetary policies being applied
Capital inflows were strong in 2010 thanks to the liquidity provided by the central banks of developed countries and a total of US$ 10.7 billion of foreign liquidity flowed into the bond market throughout the year. Furthermore, the CBT’s loose monetary policies ensured bond yields remained low. Within this framework, the benchmark bond yield, which had been nearly 9% in early 2010, fell to as low as 7.1% in December 2010.

In the FX market, the $/TL exchange rate, which stood at 1.45 at the beginning of 2010 rose to as high as 1.60 during the year as global risk appetite weakened amid concerns over Euro Zone economies struggling under a burden of heavy debts. However, the Lira then began to recover against the dollar again as Greece and Ireland were included in the IMF-EU rescue fund. As a result of this development, the $/TL exchange rate fell back to below 1.40 in November before rising back to 1.55 towards the end of the year as the CBT loosened its monetary policy.

Liquidity provided by developed countries’ central banks also drove prices higher in the global commodity market. Within this framework, the average price per barrel of crude oil rose from $62 in 2009 to $80 in 2010.

In addition, as strong economic growth fuelled demand for imports, the current deficit/GDP ratio rose from 2.3% in 2009 to 6.4% in 2010. The current deficit is expected to rise further in 2011 and approach 7%.

The Turkish banking sector maintains its robust structure
The average capital adequacy ratio, which was 20.6% at the end of 2009, fell to 19.0% by the end of 2010, although this can still be considered as a high figure.

Banking sector data as of end-December 2010 (TRY billion)

Total assets


Credit volume


Marketable securities portfolio


Deposit volume


According to these brief figures, the banking sector succeeded in raising its total assets by 21% in 2010, with a 34% increase in its credit volume, a 9.5% increase in its securities portfolio and 20.0% growth in its deposit volume.

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