To meet the recently growing liquidity need, the weight of marginal funding was increased and, as a result, the CBRT average funding rate increased (Chart 3). The CBRT average funding rate has been hovering around 8.5 percent since midJune (Chart 4). The BIST Interbank overnight rate, on the other hand, remained close to the upper bound of the corridor as in the previous reporting period. BIS central bankers’ speeches  1  Thanks to the cautious monetary stance, the yield curve remained nearly flat. Although the yield curve has remained basically unchanged since the publication of the previous Inflation Report, there was a slight increase in the market rates with more than two-year maturity (Chart 5). Thus, the spread between the overnight repo rates at the BIST Interbank Money Market and 5-year market rates has narrowed somewhat (Chart 6). I would like to reiterate that we will monitor inflation expectations, pricing behavior and other factors that affect inflation closely and maintain the cautious monetary policy stance by keeping a flat yield curve until there is a significant improvement in the inflation outlook in the upcoming period. The wide interest rate corridor and the tight liquidity policy that we have been implementing reduce the economy’s sensitivity to global shocks, thus supporting financial stability and facilitating the attainment of the price stability objective. In the post-crisis period, the unconventional policies of advanced economies and the ongoing uncertainties over global monetary policies caused long-term interest rates in these economies to fluctuate.

Annual food inflation, which makes up around 25 percent of the consumption basket, fell to 9.28 percent in June. Similarly, annual inflation in food and catering services posted a significant decline in this period. Also in this period, consumer inflation excluding food and catering services increased by 1 point to 5.82 percent in the inter-reporting period due to these cost pressures (Chart 15). To sum up, food prices pulled inflation down in the second quarter, yet the depreciation in the Turkish lira restricted this decline, inhibiting the desired improvement in the inflation outlook. Owing to the expected partial recovery in food prices accompanied by the cautious monetary policy, we project the deterioration in the inflation outlook to remain limited and inflation to reach the target in the medium term. According to the GDP data of the first quarter of 2015, economic activity proved more robust compared to the outlook presented in the April Inflation Report, and the GDP rose by 1.3 and 2.3 percent on a quarterly and annual basis, respectively (Chart 16). An analysis of national income components on the production side indicates that all sectors excluding construction exhibited increases in the first quarter compared to the previous-quarter averages. In this period, agriculture and net tax items regarding the GDP growth stood out, while industry and BIS central bankers’ speeches  3  services maintained their mild trend of increase (Chart 17). Seasonally-adjusted data on the expenditures side reveal that final domestic demand increased owing to the rise in consumption expenditures in the first quarter.