Furthermore, the Bank is the only body responsible for conducting monetary policy. In addition, credits extended to the Treasury and other public institutions are now illegal and the Bank shall not purchase debt instruments issued by the Treasury or by public establishments and institutions in the primary market. Amendments to the Central Bank Law constitute an important institutional step taken on our way to the European Union. All of these mean the Bank determines the monetary policy and the policy instruments to be used at its own discretion. As a natural consequence of this discretion, the Bank is also required to establish the highest possible level of accountability and transparency. According to its Law, each year in April and in October the Governor appears before the Council of Ministers to explain monetary policy and operations. We also make presentations to the Parliament twice a year. Similarly, the Central Bank gives utmost importance to transparency. BIS Review 19/2006  3  Evidently, transparency and accountability cannot be considered separately from the communication policy. Good communication appears to be an unquestionable condition for the effectiveness of monetary policy. Only in that way, the Central Bank can manage to be correctly understood by economic agents and shape expectations the way it desires. Besides, good communication plays an important role in reducing uncertainties and enhancing confidence by rendering the Central Bank’s policies more understandable and predictable. The insulation of the public communication from political pressures constitutes one of the most important aspects of good communication.

First: As of January 1, 2005 we dropped six zeros from the Turkish lira. Thiswas an important development for the economy as a whole. Second: The Turkish Statistical Institution announced a change in the calculation methodology of the price indices including CPI, starting from January 2005. During 2005, in addition to these two developments, further steps were taken in order to improve conditions before starting full-fledged inflation targeting regime. We continued to develop our decisionmaking process towards more transparent and efficient policymaking. So, though the Monetary Policy Committee continued to be an advisory body in making policy decisions, it began to meet regularly on the pre-announced days to discuss developments on inflation and economy in 2005. Decisions on short-term interest rates of the Central Bank were made public on the following business day taking the evaluations during the meeting into account. Following the announcement of policy decisions, a report on inflation and outlook, which would include the reasoning of the decision and the views of the Committee members together with the signals on how the decisions on interest rates would evolve in the future, has been made public. Another step was the reorganization of the Research Department to fit the needs of policy design and analysis under the full fledged inflation targeting regime. Besides, the information set that we use to forecast future inflation was further enlarged; forecast models for inflation were improved and sophisticated. Now, let me proceed with some of the key elements of full-fledged inflation targeting regime that became effective in 2006.