VKF_FRAE_2017

PART I: INTRODUCTION 34 VakıfBank Annual Report 2017 The European Central Bank (ECB) continues its expansionary monetary policy supportive of economic activity. THE WORLD AND TURKEY IN 2017 meeting, the ECB announced that it will cut its bond purchase program, from a monthly EUR 60 billion down to EUR 30 billion by January 2018, and will maintain this level until September 2018. The ECB stated that bond purchases could extend beyond September 2018 and that the volume could be changed if necessary until there appears a sustained improvement as regards inflation targets and economic outlook. The ECB is not expected to carry out interest rate hikes before 2019, that is, before the bond purchases are complete. The Bank of Japan (BoJ) kept its policy rate at -0.1% and the 10-year bond interest rate at 0.0%. Deflationary pressures persisted in Japan in 2017. Japan is still well below its 2% inflation target. It is expected that the Bank of Japan will continue to pursue an expansionary monetary policy until it reaches the 2% target. The Bank of Japan is expected to continue its yield curve-controlled expansionary monetary policy in 2018. People’s Bank of China, which wants to check the decline in investment productivity and stimulate total domestic demand through private consumption, has decided to reduce required reserve ratios starting from 2018. The required reserve ratios will be 50 basis points lower for those banks whose comprehensive funding size is above 1.5% of their total loan portfolio within their overall bank funding. Banks whose comprehensive funding size is above 10% of their total loan portfolio will enjoy an additional 1 point discount. The rapid growth seen in the housing sector in recent years, the increase in interest rates, and the monetary tightening measures of the Chinese government may result in an economic slowdown in the coming quarters. However, this prospect does not create a climate of fear and anxiety similar to that seen at the beginning of 2015 in global markets. Back then, the Chinese economy had registered a growth performance below expectations, triggering market volatility due to a heightened risk perception. »» ALTHOUGH INFLATION IN THE UNITED STATES HAS APPROACHED THE FED’S TARGET, THE STRUGGLE AGAINST DEFLATION CONTINUES IN OTHER DEVELOPED ECONOMIES. Developed economies continued to grapple with the problem of deflation in 2017. Whereas other countries implemented an expansionary monetary policy, the US started to tighten its monetary policy in 2014 and the inflation rate rose from 1.3% in 2016 up to 2.1% in 2017. The Euro Zone inflation rate, which stood at 0.2% in 2016, closed the year 2017 at 1.4%. Despite ongoing deflationary concerns about the region, the inflation outlook is expected to improve over the prior year and materialize as 1.5% in 2018. The Japanese inflation, which had ended the year 2016 at minus 0.1% is expected to turn positive and reach 0.1% in 2017. Although such a positive inflation figure will be favorable, deflationary pressures are nonetheless thought to continue in 2018, despite the negative interest rates in place for a long time. »» 2017 MARKED BY ELECTIONS IN EUROPE. In the major EU economies of France, Germany and the UK, the political agenda left its stamp on the year 2017. The May presidential elections in France was won by the pro-EU and pro-market leader of the La République En Marche! movement Emmanuel Macron, as expected by the markets. Emmanuel Macron’s victory alleviated concerns over a possible breakup of the EU, and the resulting positive outlook had a likewise favorable effect on developing markets. It is considered that the Bank of Japan will continue its expansionary monetary policy in 2018.