In this context, the Central Bank’s informing the public about the economic situation and risks, using various communication channels, must be viewed as a significant part of its independence. In the last four years, our Central Bank has experienced a historical transformation in terms of its communication policy. It all started with carrying out a new organizational arrangement within the Bank, founding a separate department. This department has the responsibility of preparing documents and booklets, and organizing meetings and conferences to explain monetary policy as well as improving the information set provided through the web page of the Bank. What we have achieved next was to elucidate the newly established conceptual framework of monetary policy. To this aim, we have tried to explain to the public concepts such as ‘inflation targeting’, ‘price stability’, ‘floating exchange rate regime’, ‘good governance’, and ‘sustainable growth’, standard elements of textbooks and generally known only in academic circles. To make economic agents familiar with these concepts, the communication policy of the Central Bank has effectively been used on every occasion through lectures and speeches across the country. Now, we know that these concepts are much better understood by the public. I truly believe that this good communication has played a very important role in the performance of the Central Bank in bringing down inflation. Dear Guests, Two important developments and their possible effects on the economy made us decide the year 2005 as a transition period and adopt full-fledged inflation targeting regime in 2006.

At that time, the long “fiscal dominance” history of the Turkish economy that severely restricted the efficiency of monetary policy and shallow financial markets that were not well developed were the primary characteristics of the Turkish economy. All these limited the economy’s room for maneuver on the eve of the adoption of the new monetary policy regime. Independence of the Central Bank of Turkey that came in 2001, was almost the only institutional factor in hand at that time on the way towards the ultimate objective of price stability. Given this overall framework and conditions, the Central Bank of Turkey preferred a smooth transition towards inflation targeting whereby it would wait until all these factors that restrict the efficiency of monetary policy would weaken. In early 2002 following the achievement of relative stability in financial markets after the 2001 Crisis, the Bank announced its new monetary policy regime in a public statement as implicit inflation targeting. As it was emphasized in the same now historical statement, the final aim was to adopt the full-fledged inflation targeting regime, once the preconditions were met. This ‘new’ regime was defined as inflation targeting since the central bank announced a numeric target for annual inflation jointly set by the government according to its law and price stability was now its primary objective. Furthermore, it was similar to inflation targeting in the sense that the decision making process was shaped in a forward looking manner by exploiting the broadest set of information available.