Also, due to measures taken by the Banking Regulation and Supervision Agency (BRSA) and the tight fiscal policy stance, domestic demand growth was brought to a sustainable level in the third quarter. In this period, credit, production and sales data, as well as confidence indices, indicated ongoing loss of momentum in private consumption demand. In this context, the outlook for the third quarter was based on an ongoing slowdown in domestic demand (Chart 11). 6  BIS central bankers’ speeches  Driven mainly by advanced economies, global growth forecasts were subject to substantial downward revisions in the third quarter. In this respect, projections for Turkey’s exportweighted global growth index point to a weaker medium-term outlook compared to the previous period (Chart 12). Therefore, forecasts were based on an outlook of weaker external demand compared to the previous period. Consequently, the output gap was revised upwards for the short-term and downwards for the medium term. Moreover, assumptions on oil and other commodity prices were revised slightly downwards (Chart 13). You can see the effect of these revisions on 2011 and 2012 year-end inflation forecasts (Table 1). BIS central bankers’ speeches  7  Esteemed Guests, In the July Inflation Report, the price increases in tobacco products were assumed to be consistent with the inflation target, adding approximately 0.3 percentage points to inflation. However, considering recent developments, the estimated contribution of price increases of tobacco products to inflation is revised upwards to 0.9 percentage points.

Accordingly, should unhealthy price formations arise due to loss of depth in the FX market, we can resume FX selling auctions or directly intervene in the FX market without undermining the basic principles of the floating exchange rate regime. In addition, depending on the global economic developments, we may resume intermediary activities in our FX Deposit Market with the aim to enhance FX liquidity flow in the interbank FX market. Lastly, I will briefly mention the issue of financial stability. We can summarize the core objective of the policies we have been implementing since November 2010 as slowing down the excessively rapid growth of the private sector’s external liabilities and improving the quality of these liabilities. Accordingly, the downward trend in the seasonally adjusted monthon-month current account deficit, which started in July 2011, will continue in the final quarter after a pause in September 2011. The steady rise in the shares of direct foreign investments and long-term borrowing in the financing of the current account deficit continues. We believe that further slowing down of the current pace of growth, especially in consumer loans, in the rest of the year would contribute to the sustainability of the rebalancing of domestic and external demand. Thus, the rise in the private sector’s propensity to save in Turkey will ensure a more rapid and sound correction in the current account deficit. In the upcoming period, effective liquidity management through the interest rate corridor will become an important policy instrument that will also contribute to financial stability.