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 July 2015 Inflation Report, Ankara, 30 July 2015. *  *  *  Accompanying charts can be found at the end of the speech. Distinguished Guests, Welcome to the briefing held to convey the main messages of the Inflation Report of July 2015. 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. These boxes in the Report look into the information content of credit in explaining inflation, scrutinize the taxation in the Turkish tobacco products market, analyze the export-inflation relationship in food products, examine the use of survey data in short-term GDP forecasts, elaborate on the effect of oil prices on exports, and present information on the government spending multiplier. The titles of the boxes are shown on the slide. All of these analyses shed light on noteworthy issues in the Turkish economy. I strongly recommend that you read these boxes, which will soon be published on our website. I would like to commence my speech by reviewing the global economic outlook, given its undeniable influence on our policies.

Global financial markets remained volatile in the second quarter of 2015, which was attributed to the continued divergence among global monetary policies, the uncertainty surrounding the Federal Reserve (Fed)’s normalization plans and developments regarding the Greek debt crisis. In this period, the volatility in long-term rates reached quite high levels, especially across advanced economies (Chart 1), which also affected emerging-market rates. Thus, portfolio flows to emerging-markets weakened (Chart 2). The global economic slowdown of 2014 continued into the first quarter of 2015 largely due to emerging economies. Despite signs of economic recovery in Europe, geopolitical tensions continued to restrain Turkey’s external demand. The volatility across global markets had implications for the Turkish economy as well, causing fluctuations in financial indicators amid domestic uncertainty. In this period of heightened volatility in long-term interest rates of advanced countries and added interest-rate sensitivity in emerging economies, the interest-rate corridor and the tight liquidity policy we have been implementing played a major role in shielding the economy against global shocks. Moreover, our structural and cyclical measures supporting FX liquidity, core liabilities and long-term borrowing strengthened the economy’s resilience. 1. Monetary policy and financial conditions  In view of the uncertainty over global markets and the volatility in food and energy prices, we maintained a cautious monetary stance in the second quarter of 2015. In this period, we kept interest rates unchanged, but continued with the tight liquidity policy to contain risks to core inflation and inflation expectations.