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.

However, the main drivers of this third-quarter fall in inflation were energy and core goods. Annual inflation continued to decline across the core goods category thanks to decreased negative effects of exchange rate developments. Regarding underlying inflation trends, there has been a significant improvement in the core goods category. Meanwhile, the services category produced a relatively negative outlook. In the third quar ter, the core inflat ion tren d reco rded a decli ne  BIS central bankers’ speeches  5  following the favorable impact of the macroprudential measures and our tight monetary stance (Chart 11). Accordingly, the marked first-half inflation increase in core indicators was reversed in the third quarter. Yet, I would like to note that underlying trend indicators are still above the target-consistent levels. In this period, international commodity prices, especially oil, fell in line with the weak global growth outlook and USD-denominated import prices dropped. In addition to this favorable outlook of import costs, aggregate demand conditions and the relatively slow pace of growth in consumer loans alleviate the pressures on inflation. In fact, excluding food products and associated services subcategories, we see that annual consumer inflation declined considerably in the third quarter (Chart 12). In sum, the negative effects of cumulative exchange rate developments continued to wane in the third quarter, yet food prices remained on a relatively unfavorable track. The prolonged high level of consumer inflation and the ongoing deterioration in inflation expectations adversely affect pricing behaviors in certain categories, particularly services.