turalay kenc : the turkish economic outlook and monetary policy – challenges and policy response remarks by mr turalay kenc, deputy governor of the central bank of the republic of turkey, at the eu ambassadors meeting, ankara, 28 january 2016. * * * i would like to start by thanking his excellency ambassador cornelis van rij for the opportunity to share with such distinguished audience some views about the turkish economy, the challenges stemming from a very volatile external environment, and the policy approach that has been implemented to cope with these challenges. the turkish economy has shown a relatively robust performance in the face of major external and internal shocks. gdp growth is estimated at around 4 percent in 2015 with an expected gradual strengthening of economic activity in 2016 and in 2017. the rise in gdp growth rate observed in 2015 is mostly attributed to strong private consumption. private investment recorded a moderate recovery. the challenging external conditions especially geopolitical events in the region have adversely affected exports. however, the economic recovery in most eu member states enabled turkey to largely compensate its loss in other exports markets as turkey increased exports to the eu countries by more than 10 percent in euro terms in 2015. this outcome also highlights turkish exporters ’ resiliency in adopting to adverse economic conditions. of course, probably the most significant development of the last year or so has been the sharp decline in oil prices. turkey, being an energy importing country benefited from lower oil prices in many dimensions. the current account deficit fell from $ 52 billion in june 2014 to below $ 35 billion in november 2015 in 12 month rolling terms. this sharp improvement in the current account balances is also greatly helped by prudent macro - economic polices including monetary, macro - prudential and fiscal policies. tight monetary policy, well - targeted macroprudential measures and strong fiscal balances have all contributed to lower levels of domestic demand by stabilizing loan growth and reducing risk taking behavior. going forward, the current levels in oil prices and depressed producer prices in most part of the world due to weak economic activity are expected to lead to further improvements in external balances. therefore, it is highly likely that turkey will record a current account deficit of below 4 percent of its gross domestic product in 2016, representing a major achievement in satisfying the norm of the european union ’ s macroeconomic imbalances procedure. unlike these positive developments in the economy, inflation increased and its outlook worsened in 2015 reflecting the pass - through from the tl

the monetary policy framework to improve the communication of the monetary policy stance. all but the interest rate corridor simplification step on the roadmap have already been taken and the focus is now firmly on fine - tuning their parameters. overall, these measures ease the policy tradeoffs posed by the excessive volatility in cross border flows, enabling the interest rate policy to concentrate on the primary objective of price stability. so far the financial market performance of turkey suggests that the measures undertaken since august 2015 have helped turkey outperform many peer em countries. of course, on the way, turkey also enjoyed the benefits of lower oil prices relatively more than many emes and reduced political uncertainty after the general election result in november 2015. the banking sector maintains its strong and sound position as banks in turkey are wellcapitalized with high quality and highly liquid assets and continue to offer solid rates of return on capital. as a result the banking sector still provides a reasonable loan growth for the economy despite heightened uncertainty in global markets. to conclude given the ongoing challenging external conditions it will be essential to continue to implement a tight and flexible monetary policy in order to lower inflation in a volatile environment. meanwhile, taking liquidity stabilizing measures for the foreign currency market and ensuring the stability of the financial system are key to alleviate policy tradeoffs. last, but not the least, maintaining the fiscal discipline ; and adhering strictly to the announced structural reform agenda in order to lift potential growth in accordance with the country ’ s needs remains the key to stability. bis central bankers ’ speeches