Erdem Başçi: Recent economic and financial developments in Turkey Speech by Mr Erdem Başçi, Governor of the Central Bank of the Republic of Turkey, at the press conference for the presentation of the October 2014 Inflation Report, Ankara, 31 October 2014. *  *  *  Original presentation is on the Central Bank of the Republic of Turkey’s website: http://www.tcmb.gov.tr/ wps/wcm/connect/47fed704-6c8d-48a4-9fce-458bc4bad30b/ER_Ekim_2014_Konu% C5%9Fma_%C4%B0ngilice.pdf?MOD=AJPERES&CACHEID=47fed704-6c8d-48a4-9fce-458bc4bad30b  Distinguished Guests, Welcome to the briefing held to convey the main messages of the Inflation Report. I will now present an overview of the report, which will be published on our website soon. The report typically summarizes the economic outlook underlying monetary policy decisions, shares our evaluations on macroeconomic developments and presents our medium-term inflation forecasts, which were revised in view of the developments in the last quarter, along with our monetary policy stance. In addition to the main text, the report includes six boxes entailing interesting and up-to-date analyses on various topics. For example, the report presents boxes that analyze how the determinants of bond flows into emerging economies change over time and the sensitivity of inflation to output gap and loans. Moreover, there are studies elaborating on current account fluctuations and current account deficit corrections, non-core liabilities, the correlation between capital flows and loan growth across a wide range of economies and the role of macroprudential measures in the elasticity of loans to capital flows. Titles of the boxes are shown on the slide. All of these analyses shed light on noteworthy issues in the Turkish economy.

We expect the fall in commodity prices, which is driven by the weak global demand, to bring consumer inflation down, and the awaited moderate pace of domestic demand to restrain the upside risks. Thus, we believe that underlying inflation will move downward in the forthcoming period. Distinguished Guests, Now, I would like to give a brief account of developments in economic activity and the shortterm outlook on which the inflation forecasts are based. According to the GDP data of the second quarter of 2014, economic activity was relatively weaker compared to the outlook we presented in the July Inflation Report. In the second quarter, we saw that industrial production remained virtually unchanged quarter-on-quarter, while national income posted a decline after eight quarters in seasonally adjusted terms (Chart 13). This decline was mostly attributed to the agricultural sector, which made a 0.3 point negative contribution to quarterly growth. Therefore, national income growth lagged behind industrial production growth (Chart 14). 6  BIS central bankers’ speeches  Industrial production, which grew by 1.1 percent in the July-August period of 2014 compared to the preceding quarter, contributed to growth in the third quarter. On the other hand, we may see some decline in the agricultural value added. Thus, there are signals that GDP growth may fall short of the industrial production growth in this period as well. Factors like the slowdown in the European economic growth and geopolitical developments led the external demand to decelerate, inducing a marked slowdown in the growth of exports excluding gold (Chart 15).