Durmuş Yilmaz: Press conference for the presentation of the Inflation Report Press conference by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, for the presentation of the Inflation Report, Ankara, 27 July 2010. *  *  *  Distinguished Guests and Members of the Press, Welcome to the press conference held to convey the main messages of the July 2010 Inflation Report. The report typically summarizes the economic framework addressed in monetary policy decisions, elaborates global and domestic macroeconomic developments and presents the medium-term inflation forecasts, which have been revised in view of previous quarter developments, along with the monetary policy stance. Before moving on to the Central Bank’s assessments on the inflation outlook and economic activity, which I will share with you in detail shortly, I would like to summarize the current global conditions. The recovery in global economic activity continued during the second quarter of 2010. However, with the deepening financial distress, the euro area experienced weaker growth than other advanced economies, pushing down the growth rate for advanced economies, whereas, emerging economies continued to grow faster than advanced ones (Figure 1). Furthermore, it is noteworthy that that the modest recovery in growth in advanced economies has not yet been reflected on labor markets (Figure 2). This situation continues to have a detrimental effect on sustainable recovery in these countries. Despite the recovery in global economic activity, recent developments have confirmed that the global economy remains fragile.

Despite the increased downside risks pertaining to external demand, domestic demand remains strong. Although problems regarding the global economy have the potential to restrain domestic demand through confidence and financing channels, countercyclical monetary policy and the ongoing improvement in employment conditions are likely to support  16  BIS Review 133/2010  the recovery in domestic demand. On the other hand, given the relative improvement in the creditworthiness of Turkey during the post-crisis period, a possible strengthening in capital inflows in the forthcoming period stands out as another factor that may lead to a faster recovery in domestic demand in contrast to external demand. Should the divergence in growth rates between domestic and external demand continue in the forthcoming period, it would be necessary to utilize other policy instruments such as reserve requirement ratios and liquidity management facilities more effectively. Accordingly, if the composition of strong domestic demand and weak external demand continue as envisaged, and if this pattern of growth co-exists with rapid credit expansion and a deterioration in the current account balance, consequently leading to financial stability concerns, then the CBT may bring forward measures outlined in the exit strategy expected to be implemented until the end of 2010. Distinguished guests, The Central Bank of Turkey will continue to monitor fiscal policy developments closely while formulating monetary policy. Since the second half of 2009, economic activity has been stronger than envisaged in the MTP, leading to better-than-expected performance in budget revenues.