Credit growth rates vary between the reports of intermediaries, banks and research institutes.

Domestic credit growth rate has become an important variable for monitoring the monetary policy alongside the consumer price index (CPI) inflation and real exchange rate. The Central Bank (CB) has been setting targets for all the three, explicitly or implicitly. The inflation target is declared at the beginning of the year, as per the relevant law. Real exchange rate and credit growth rate targets are expressed either in several meetings by the CB governor or in CB reports.

CPI inflation figures are released on a monthly basis exclusively by the Turkish Statistical Institute (TURKSTAT). The CB does not target another modified version of inflation. Hence, when the TURKSTAT releases CPI inflation figures, we have a clear picture about whether or not inflation as one of the key objectives of the monetary policy is close to the target.

The real exchange rate index is released by the CB, also on a monthly basis. Just like the case with CPI inflation figures, there is no other real exchange rate index. The index released by the CB is the only and the very index which the CB targets. Therefore, we have a clear picture about whether or not the exchange rate is close to the exchange rate target or not.

This does not hold for credit growth rate targets, however. There are two agencies that release credit figures: the CB and the Banking Regulation and Supervision Agency, BRSA. But there is more: FX loans constitute some proportion of domestic credit volume. Summing lira loans and the lira value of FX loans to assess overall credit developments might be misleading due to the exchange rate effect. The CB calculates the lira value of FX loans after exchange rate adjustments. We have an idea of this adjustment method based on some technical presentations; but, we cannot calculate it ourselves precisely. This is why credit growth rates vary between the reports of intermediaries, banks and research institutes.

This confusion must be overcome to precisely calculate the credit growth rate. The calculation method must be explained clearly with exemplifications, and the results must be released. My personal calculations which I believe are in line with the CB’s method are as follows: the annual growth rate recorded in the last quarter of 2012 was 15.2 percent, harmonious with the target. However, credit growth has been accelerating since the second half of 2012. The figures for the first seven weeks of 2013 reveal an annual growth rate of 21.9 percent. The rate for the last three weeks is even higher: 23.6 percent. These all are remarkably higher than the 15 percent target.

Up to this part was the flash news. Estimations are also critical for many commentators and decision-makers. Estimating CPI inflation and credit developments under certain scenarios is possible, if not easy especially for the latter. It is more challenging to estimate real exchange rate developments, however, as the calculation involves the exchange rate and CPI inflation in a number of countries. This “low-predictability” issue is worth noting.

This commentary was published in Radikal daily on 28.02.2013