Investment expenditures contracted both in the public and the private sectors on a quarterly basis. According to the data on exports and imports of goods and services, exports posted an increase, but imports declined on a quarterly basis in the first quarter. Foreign trade data excluding gold indicate that the import quantity index posted a steady rise in line with the uptrend in domestic demand in this period, while exports declined amid the weak course of external demand. Data on the second quarter of 2015 suggest that the economic activity continues to expand at a moderate pace. Industrial production rose by 1.0 percent in the April-May period compared to the previous quarter. Combined with the other indicators for June, we expect the industrial production to record a quarterly increase in the second quarter. Sales, production, and import indicators regarding domestic demand show that the final domestic demand will continue with an uptrend stemming from consumption demand. Investment indicators, on the other hand, signal that the weak outlook will remain in the second quarter. The export quantity index excluding gold increased at a modest rate in the April-May period following the contraction in the first quarter, while imports excluding gold maintained their uptrend suggesting that the contribution of external demand to economic growth may be limited in the second quarter (Chart 18). The recovery in economic activity is projected to continue in the upcoming period, yet risks to growth exist. Downside risks regarding external demand persist due to geopolitical developments and troubles in Europe.

In addition, emerging-market rates have become extremely sensitive to global monetary policy developments. To contain repercussions on the Turkish economy, we designed a monetary policy framework composed of a wide interest rate corridor and an active liquidity policy. The CBRT’s wide interest rate corridor and the tight liquidity policy strengthened the resilience of the Turkish economy against global shocks and proved to be effective in pursuing the primary objective of price stability. The wide interest rate corridor enables us to raise shortterm rates temporarily above long-term rates when faced with shocks and to keep the yield curve nearly flat or inverted. Accordingly, Turkish lira-denominated long-term rates remain more stable and the economy becomes less sensitive to global long-term interest rate shocks. Moreover, a flat or inverted yield curve constitutes an effective monetary policy stance that supports disinflation. In fact, especially following the strong monetary tightening of early 2014, we all saw that the sensitivity of domestic markets to global interest rates weakened substantially and core inflation indicators have improved significantly (Chart 7). In the upcoming period, following the start of normalization of global monetary policies, volatility in long-term interest rates may decline permanently thanks to forward guidance policies. According to this baseline scenario, the need for a wide interest rate corridor in our country may diminish over time. In that case, we may simplify the operational framework of the CBRT’s interest rate policy gradually.