As a matter of fact, the faster-than-expected economic recovery and falling interest expenditures have helped to improve Turkey’s fiscal outlook. The increase in tax revenues amid rapid economic growth and tax adjustments were the major drivers of the improved budget balances in 2010. Moreover, the relative slowdown in the growth of non-interest expenditures as well as the significant decline in interest expenditures driven by falling domestic borrowing rates contributed to the improvement in fiscal balances. 10  BIS central bankers’ speeches  31. Fiscal indicators in the MTP suggest that the positive outlook, which was also underpinned by the stronger-than-expected recovery in 2010, would continue in the upcoming period. Indeed, the recent data imply that the favorable outlook persists in tandem with the robust economic activity. Nevertheless, I would like to remind that in order to maintain fiscal discipline and ensure that Turkey continues to have more positive readings than other emerging economies, implementation of the institutional and structural reforms set out in the MTP remains critical. Esteemed Guests, 32. In the last part of my speech, I would like to mention monetary policy decisions in 2010 and the monetary policy strategy that we currently implement. In this context, I will first summarize inflation developments, and then, I will move on to monetary policy implementations within the inflation targeting framework. Monetary policy decisions and implementations 33. Inflation was mainly determined by tax adjustments and the course of unprocessed food prices in 2010.

Core inflation indicators remained low and stable as unemployment rates and capacity utilization rates hovered below pre-crisis levels. Thus, inflation came down to 6.4 percent by the end of 2010, almost reaching the year-end inflation target of 6.5 percent. With the downward revision in food prices, the decline in inflation continued in the first quarter of 2011, and inflation rate was down to 3.99 percent in March 2011. BIS central bankers’ speeches  11  34. Core inflation indicator SCA-H (consumer price index excluding energy, unprocessed food, alcoholic beverages, tobacco and gold) increased 3.49 percent year-onyear while SCA-I (SCA-H excluding processed food) registered an all-time year-end low of 2.99 percent. In the first quarter of 2011, despite a slight upward movement, the annual rate of increase in core inflation indicators remained relatively low. 35. Although year-end inflation expectations fluctuated due to the volatile course of food prices throughout 2010, medium-term expectations remained basically unchanged. As of the first quarter of 2011, the 24-month ahead inflation expectation stands at 6.29 percent, hovering slightly above our medium-term target of 5 percent. 12  BIS central bankers’ speeches  36. Inflation may rise in the short term due to lagged effects of oil prices and base effect. I would hereby like to remind you that we will be more extensively providing the public with updated evaluations and forecasts on the medium-term inflation outlook along with possible risks and policy measures, in the Inflation Report to be published on April 28, 2011. Distinguished Guests, 37.