Mr. Erçel reports on medium and long-term prospects for the Central Bank of the Republic of Turkey  (Central Bank Articles and Speeches, 28 Apr 98)
Central bank: tcmb | Type: speech | Date: 1998-04-28

Mr. Erçel reports on medium and long-term prospects for the Central Bank of the Republic of Turkey Address by the Governor of the Central Bank of the Republic Turkey, Mr. Gazi Erçel, before the 66 th Shareholders' General Meeting, in Ankara, on 28/4/98.A detailed account of economic developments during 1997 is given in our ann report for that year which has already been delivered to you.

We are keeping th informed of our expectations for this year through the quarterly announcements of our programme.

Today, instead of repeating these short-term perspectives, I would like to the medium and long-term prospects of the Central Bank.

For the last two years, my d has touched on what kind of institution an ideal central bank should be.

Today, consider this matter in a more detailed way.In recent years, there has been a worldwide trend towards simplification of t of central banking.

This has led to a reduction of the responsibilities they take on. governments, for example, is no longer the main purpose of central banks.

There is non the western central banks that aims at achieving full employment of the highest production.

Today's modern central banks have only one aim: to maintain price stabilitIt is not surprising that the Central Bank of Turkey, one of the most im institutions of the Turkish economy, which hopes to become integrated with the w economies, is affected by these trends in modern central banking as it maps out its me long-term strategies.Accordingly, the main goal of the Central Bank of Turkey, like that of other banks, should be to maintain the stability of prices in the economy.At this stage I would like to clear up two points with respect to the pric target.

First, the Central Bank's price stability target and its responsibility for p two different issues.

The price stability target assumes a stability which exists und of low inflation.

Therefore, the economy has to undergo a 'disinflationary process' Central Bank assumes responsibility for price stability.It is well known that in Turkey, which has been experiencing high inflation fo reducing inflation to the levels of the western economies will require a comprehensive is not a process which can be accomplished by the Central Bank alone.

The Central Ba track the price stability target as a part of the larger disinflationary programme. once low inflation rates have been achieved by means of such a programme, it will be a decision to make the Central Bank responsible for maintaining price stability.The second point I want to stress concerning the price stability target microeconomic functions of central banks.

Efficient operation of a payments syst supervision of the banking sector are two other basic functions of a central bank. functions can also be performed in a way that supports price stability targets: indee effective financial sector and payments system are necessary conditions for price stabiDuties assumed by the Central Bank of Turkey in the economy, which aims at p stability, should be consistent with the target.

Functions that conflict with the target or which cause difficulties for the achievement of this target should not be as Central Bank.

And this should be the basic theme of the Bank's medium and long-term st planning.Whether or not those functions assumed by the Central Bank as a result of factors as the country's geographic size, history, legal structure and degree of te development operate as impediments to the achievement of stability targets, can be exam means of several criteria.

Effective use of monetary policy is an absolute necessity bank that takes price stability as its first priority.

We must therefore review thos the Central Bank that interfere with the effectiveness of monetary policy.At this point, I would like to emphasise the importance of increasing the Bank's control over its own balance sheet, which is one of the main conditions require effective implementation of policies, mainly monetary policy, that must be adopted in achieve the price stability target.

Over the past decade, substantial improvements visible in the Central Bank's balance sheet, especially on the asset side.

Fore increased, while domestic assets dropped sharply due to the decrease in loans to t sector, including valuation accounts.

The final step to be taken in this area will be law, the advances made by the Central Bank to the Treasury to zero.

Pursuant to the between the Central Bank and the Treasury, signed in the second half of last y effectiveness of the monetary policies pursued by the Central Bank increased during thi An amendment to our laws will ensure the continuance of this favourable condition. revision of the financial relationship between the Central Bank and the Treasury and th in the Central Bank's control over its balance sheet will aid the achievement of the pr target.But the structural improvements seen on the asset side of the Central Bank's sheet in recent years have not been matched by similar improvements on the liability s Turkish lira liabilities represent a minor share in our total liabilities.

To unfavourable situation, which can be seen as the reflection in our balance sheet of hig will require a lasting reduction in the inflation rate, which is the basic reason for Converting our liabilities into Turkish lira is one of our goals for the medium term.Independence is of great importance in the medium and long-term perspectives o Central Bank.

An independent central bank, with respect both to its goals and its in will promote the achievement of the price stability target.

A central bank which is i with respect to instruments will implement its monetary policy effectively.It is also recognised that a central bank which is independent of political will play an important role in minimising fluctuations arising from political uncertainToday, it is apparent that economies with independent central banks that maintained monetary and financial stability are very strong.The basic features of the Central Bank's medium and long-term strategies a choose price stability as its main target, to establish consistency between its func main target, and to revise any functions that may impede the implementation of its programme and in this context to achieve its independence.On the other hand, the organisational efficiency of the Central Bank can be the complementary element of this strategy.

There is no doubt that a central bank with personnel, which fulfils its duties with high productivity, will earn full credibility. guest, here let me quote one of the economists:

'Credibility cannot be purchased, i acquired.

And this is achieved step by step, through consistent policy implementationsTo carry the Central Bank, one of Turkey's most credible institutions, into t with this in view is the fundamental mission of my fellow workers and myself.˝