erdem basci : the importance of commodity price movements opening remarks by mr erdem basci, governor of the central bank of the republic of turkey, at the conference on “ policy responses to commodity price movements ”, istanbul, 6 april 2012. * * * distinguished guests, welcome to the conference on the “ policy responses to commodity price movements ” jointly organized by the international monetary fund, the imf economic review and the central bank of the republic of turkey. as i will deliver another speech in the panel session on the second day of the conference, i will attempt to keep this inaugural speech as brief as possible. as you will recall, we hosted a conference on commodity price volatility in istanbul last september within the context of g - 20 program. these two conferences on similar topics in such a short time are clear indicators of how important the commodity price movements are for the global economy. why are commodity prices so important? when we think of what is covered by “ commodities ” more closely, we also come up with how we should approach this issue. usually, the term “ commodity prices ” represent energy prices ( mainly the crude oil ), food prices and the prices of some main industrial inputs. energy prices are very closely monitored by economic units and policy makers, for it denotes the cost of one of the most significant inputs for the entire economy. energy is one of the primary cost factors for firms. it is also a considerable item for households ’ heating and transportation expenditures. on the other hand, due to its high share in the expenditures of especially low - income households and corresponding purchasing power effects, food prices are given a great importance by policy makers. meanwhile, the metals, such as iron ore, copper and aluminum, are among the most important raw materials for the industry and construction sector. the reason why commodity prices have been frequently attracting attention is the current fluctuations in commodity prices of a magnitude that has not been seen since 2007. price of brent crude oil, which was usd 50 per barrel in early 2007, climbed to usd 145 within one and a half year. then, parallel to the deepening global crisis in late 2008, crude oil prices went back to usd 35 ; and now it is hovering around usd 125. and the uncertainties about oil prices, resulting from demand and supply - side developments, and their potential effects keep the policymakers interest in commodity prices alive in the current economic outlook. as they are among the risk factors that affect the inflation outlook, we directly referred

. ( iv ) in this framework, in order to minimize the impact on supply and demand conditions in the foreign exchange market, the central bank, which follows a moderate reserve - raising policy, has conducted its fx buying via auctions, whose terms and conditions are announced with due notice, since 1 april 2002. moreover, the bank has announced annual auction programs since 2005 and does not make any amendments to these programs, unless extraordinary differences are observed in foreign exchange liquidity. ( v ) meanwhile, as also emphasized in all its press releases, the central bank will continue to closely monitor the volatility in exchange rates and may directly intervene in the markets in the event of excessive volatility that might occur in either direction. these volatility interventions are not only carried out by considering past data with a mechanical rule, but by evaluating all aspects of realized and potential volatilities. in the press release referred to as “ the general framework of inflation targeting regime and monetary and exchange rate policy for 2006 ” dated 5 december 2005, the annual auction program for 2006 was announced in consistence with the aforementioned general framework. the maximum daily amount that can be bought was determined as usd 60 million, with usd 20 million of auction amount and usd 40 million of optional selling amount ( 200 % of the total amount sold ), to be effective as of the 2nd of january 2006. however, in line with the decline in foreign exchange supply due to global liquidity conditions, the depth of the foreign exchange market was lost and volatilities were observed in exchange rates. therefore, the bank decided to suspend daily fx buying auctions for a certain period of time, starting from the 16th of may 2006. moreover, as a response to the excessive volatility in exchange rates observed in 2006, the central bank directly intervened in the market via one fx buying intervention and three fx selling interventions. these interventions were as follows : ( i ) following the increase in foreign exchange sales due to developments in international markets, the central bank decided to directly intervene in the market by buying a total amount of usd 5. 4 billion foreign currency on 15 february 2006, in order to prevent actual and expected excessive volatilities. ( ii ) on 13 june 2006 and 23 june 2006, the central bank decided to directly intervene in the market by selling foreign currency in order to prevent the excessive volatility observed in line with the liquidity shortage in the foreign currency market due to global liquidity conditions. total amounts sold were