I strongly recommend that you read these boxes, which will soon be published on our website. Distinguished Guests, I would like to commence my speech by reviewing the global economic outlook given its undeniable influence on our policies. In the third quarter of the year, the uncertainty over advanced country monetary policies led to a partial volatility increase in global financial markets. While the US Federal Reserve (Fed) ended its quantitative easing program, uncertainties regarding the timing and size of a policy rate hike continued. In this period, the European Central Bank (ECB) cut its policy rates against the risks of economic slowdown and deflation and announced a kind of quantitative easing program of buying covered bonds and asset-backed securities. In the second and third quarters of 2014, indicators for global economic activity performed lower than expected, causing growth forecasts for this year to be revised down. Financial market volatility and falling global growth rates led to some fluctuation in capital flows to emerging economies (Chart 1). Following the weakening global growth outlook, commodity prices dropped markedly as well. BIS central bankers’ speeches  1  Regarding the developments in the Turkish economy, the recent global financial volatility appears to have affected Turkey in a way similar to other emerging economies. In the third quarter, Turkey’s risk premium indicators fluctuated on par with those of other emerging economies (Chart 2). Economic activity lost some momentum after the first quarter. The slowing EU growth and geopolitical tensions have restrained external demand.

We will closely monitor inflation expectations, pricing behaviors and other factors affecting inflation in the upcoming period and maintain our tight  BIS central bankers’ speeches  3  monetary policy stance by keeping a flat yield curve until there is a significant improvement in the inflation outlook. We aim to support the continuity of the balanced growth and capital inflows in Turkey during the global monetary policy normalization. To this end, we have changed the foreign exchange deposit rates that the banks pay when they borrow from the CBRT within their limits through the Foreign Exchange Deposit Market. As of 9 October 2014, the rates applied to banks' one-week maturity borrowings from the CBRT as a last resort facility have been reduced from 10 percent to 7.5 percent for USD and from 10 percent to 6.5 percent for EUR. Moreover, considering the increase in the size of the banks’ balance sheets and the CBRT’s international reserves, we announced that we will revise the banks’ USD 10.8 billion transaction limits in the Foreign Exchange and Banknotes Markets at the press meeting on “Monetary and Exchange Rate Policy for 2015”. In addition, we stated that it is crucial to further strengthen the currently solid structure of the banking sector for financial stability purposes. In this context, we announced on 21 October 2014 that we will provide further support to core liabilities to spur balanced growth and domestic savings. As an incentive, we decided to remunerate the Turkish lira component of required reserves of financial institutions.