Moreover, there are studies elaborating on the role of base effects on consumer inflation in 2015, the debt dollarization of companies in Turkey and their growth performance, the macroeconomic effects of international energy prices and the reverberations of remuneration of required reserves. 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. In the fourth quarter of 2014, due to the persisting divergence among global monetary policies besides uncertainties regarding the normalization process, we saw aggravated volatility in financial markets. This led the portfolio flows towards emerging economies to fluctuate and the volatilities of exchange rates in these countries to increase (Chart 1). The persisting deterioration in global economic activity accompanied by mainly supply-side factors has recently pulled down oil prices sharply. These developments caused considerable fluctuations especially in energy-exporting emerging countries. Overall, the risk premia of emerging economies followed a volatile course due to the monetary policy uncertainties, the slowdown in economic activity and the course of oil prices (Chart 2). Effects of this volatility in global markets emerged in the Turkish economy as fluctuations of risk premium indicators and exchange rates. The fall in commodity prices, chiefly in oil, is expected to improve the economy especially in terms of inflation and external balance.

The tight monetary policy stance coupled with the macroprudential measures continues to improve the core inflation trend (Chart 11). As of the end of 2014, the core inflation trend has receded to 5 percent. The leading recent development, which affected inflation dynamics at most, has been the plunge in oil prices (Chart 12). Amid this decline, annual inflation in the energy group fell remarkably and stood below zero at the year-end. Favorable cost developments driven by plummeting oil prices also contribute to the improvement in the core inflation trend. Briefly, the last quarter of the year was marked by evident effects of the falling oil prices on inflation. A remarkable improvement was witnessed in inflation expectations after a long period and the positive effect of oil prices on the headline inflation spilled over into many subgroups, chiefly the services group. Besides the international price developments that contribute to falling inflation, we envisage that the gradual elimination of cumulative exchange rate effects, the decline in food inflation to past years’ averages and our tight monetary policy stance will support the disinflation process in the upcoming period. Against this background, we project that consumer inflation will register a notable improvement particularly in the first quarter, and inflation will recede to levels consistent with the target in mid-2015. Now, I would like to give a brief account of developments in economic activity and the shortterm outlook on which the inflation forecasts are based.