Along with the above mentioned measures, in order to ensure orderly liquidity flow in the financial system and efficient functioning of credit markets by stimulating an increased foreign exchange liquidity flow in the interbank foreign exchange market, effective as of today the Central Bank has decided: a)  To extend the maturity of the FX deposit borrowed by the Banks within the predetermined borrowing limits from one week to one month,  b)  To reduce the lending rate from 10 percent to 7 percent for USD and 9 percent for Euro in the said market. In this challenging environment the way developing countries use their foreign currency reserves is of utmost importance. The Central Bank of Turkey, if deemed necessary, will continue to take additional measures prudently within its means in order to ensure the smooth functioning of the FX market and to support FX liquidity. Dear Guests, I would like to conclude my speech by giving some information about this conference organized with the aim of discussing the effects of globalization on monetary policy and inflation. The first session today will examine the linkages between globalization, monetary policy and financial stability. In the afternoon, second and third sessions will analyze the impact of globalization on inflation and business cycles. Sessions on Saturday will be more  2  BIS Review 144/2008  policy oriented. In the morning session, speakers will look at the topic of globalization and monetary policy challenges faced by emerging market economies.

Addressing these challenges, G-20 Summit held in Brazil on 8-9 November 2008, issued a communiqué that included the following statement: “We affirmed our determination to take all necessary steps to foster non-inflationary growth in a stable and sustainable manner according to the needs and available instruments in our respective countries, including through monetary and fiscal policy.” Distinguished Guests, As concerns over inflationary pressures have subsided all over the world, maintaining the smooth functioning of financial system and efficiency of credit markets has become the main priority of policy makers. It will be proper to evaluate the recent developments in Turkish economy in this perspective. BIS Review 144/2008  1  In Turkey, the banking system has been relatively prepared for the current crisis in terms of foreign exchange liquidity. Its foreign exchange short position is also well contained. Foreign exchange position of the public sector is almost negligible. The household sector is net creditor in terms of foreign exchange, while real sector is net debtor. Since securitized products are rarely used in the Turkish banking sector, the ongoing financial turmoil has not put a marked pressure on local banks through that channel. Current account deficit, historically a source of vulnerability for the Turkish economy, is likely to experience a sharp drop in the upcoming period due to correction in commodity prices, slow down in economic activity and depreciation in New Turkish Lira. Still, extraordinary fluctuations in global liquidity conditions have adversely affected Turkey like other countries, which are sensitive to international financial developments.