First: As of January 1, 2005 we dropped six zeros from the Turkish lira. Thiswas an important development for the economy as a whole. Second: The Turkish Statistical Institution announced a change in the calculation methodology of the price indices including CPI, starting from January 2005. During 2005, in addition to these two developments, further steps were taken in order to improve conditions before starting full-fledged inflation targeting regime. We continued to develop our decisionmaking process towards more transparent and efficient policymaking. So, though the Monetary Policy Committee continued to be an advisory body in making policy decisions, it began to meet regularly on the pre-announced days to discuss developments on inflation and economy in 2005. Decisions on short-term interest rates of the Central Bank were made public on the following business day taking the evaluations during the meeting into account. Following the announcement of policy decisions, a report on inflation and outlook, which would include the reasoning of the decision and the views of the Committee members together with the signals on how the decisions on interest rates would evolve in the future, has been made public. Another step was the reorganization of the Research Department to fit the needs of policy design and analysis under the full fledged inflation targeting regime. Besides, the information set that we use to forecast future inflation was further enlarged; forecast models for inflation were improved and sophisticated. Now, let me proceed with some of the key elements of full-fledged inflation targeting regime that became effective in 2006.

However, the inflation targeting regime was also “implicit” rather than “full-fledged”, reflecting the fact that the preconditions such as a strong fiscal position of the government and further stability in the financial markets were not yet fulfilled. During the last four years, sound monetary and fiscal policies together with structural reforms, changes in the institutional framework and adaptation of the economy to floating exchange rates, however painful this might have been, have resulted in remarkable achievements on the way to price stability. During this period, the monetary policy of the Central Bank put greater and greater emphasis on ensuring the credibility of inflation targets. To this end, the Central Bank has often publicly stressed the importance of continuing with a tight fiscal policy and completing structural reforms without delay or compromise. As a result, inflation targets have been reached for four years in a row, significantly enhancing the credibility of the monetary policy. I am so glad to be able to say that today inflation is at its lowest level in thirty-seven years. Annual CPI inflation, which was 73.2 percent as recently as January 2002, is now down to single digit figures; it stands at 7.72 percent as of end of 2005. This performance in disinflation has obviously positively affected the economy. First of all, economic growth rates have been positive again in the last four years. Not only they have been positive, but very high levels have been attained. Total growth in real terms since 2001 is 31 percent.