maintain policy rates at low single digits for an extended period of time. another possible scenario is a surge in capital inflows to emerging markets owing to the relative improvement in creditworthiness of these countries. in this context, receding risk premia and appreciating currencies would present downside risks regarding inflation prospects. these circumstances could also trigger acceleration in rate cuts, or another easing cycle, which could then bring policy rates which hover around low single digits for a prolonged period of time. increasing budget deficits worldwide continue to pose risks on inflation expectations and thus on global interest rates in the long term. the medium - term forecasts presented above envisage that the slow recovery in global economic activity and rising saving rates will keep global interest rates at low levels for an extended period. however, the lack of a clear exit strategy from global fiscal stimulus packages creates upside risks regarding global inflation rates and therefore longer - term global interest rates. counter - cyclical fiscal policies to curb the contractionary effect of the crisis on economic activity, which have also been introduced in turkey in line with global trends, have accelerated the rise in budget deficit. the relatively low level of public sector indebtedness in turkey compared to other countries implies that we have a broad fiscal space. however, when the maturity composition of borrowing, the level of interest rates and the depth of financial markets are taken into account, it is observed that the fiscal space is not broad enough for countercyclical fiscal policies. therefore, backing up the short - term increase in budget deficit with a medium - term program ensuring the sustainability of debt dynamics is crucial for maintaining our risk premium at relatively low levels. accordingly, domestic perceptions regarding public finance are very important for the monetary policy strategy to be implemented in the medium - term, especially after 2011. the global crisis has raised awareness as to the resilience of our financial system and helped risk indicators to perform better compared to other developing countries and enabled a fast ratecut cycle. thus, single - digits were finally achieved in short - term interest rates after many years. meanwhile, the level of medium and long - term market interest rates still remain elevated. the present conjuncture offers an important opportunity to achieve and maintain single digits in market interest rates throughout the forecast horizon of three years. achieving and maintaining single digits in medium and long - term market interest rates will depend on establishing fiscal discipline. the introduction of a satisfactory perspective for fiscal discipline in the upcoming period would not only

the foreign exchange value of the dollar. reflecting the swing from dollar appreciation to dollar depreciation, the dollar prices of goods and services imported into the united states have begun to rise after declining on balance for several years, but the turnaround to date has been mild. apparently, foreign exporters have been willing to absorb some of the price decline measured in their own currencies and the consequent squeeze on profit margins it entails. part of exporters'losses, however, have apparently been offset by short forward positions against the dollar in foreign exchange markets. a marked increase in foreign exchange derivative trading, especially in dollar - euro, is consistent with significant hedging of exports to the united states and to other markets that use currencies tied to the u. s. dollar. however, most contracts are short - term because long - term hedging is expensive. thus, although hedging may delay the adjustment, it cannot eliminate the consequences of exchange rate change. accordingly, the currency depreciation that we have experienced of late should eventually help to contain our current account deficit as foreign producers export less to the united states. on the other side of the ledger, the current account should improve as u. s. firms find the export market more receptive. * * * although the prospects for the u. s. economy look quite favorable, we need to remind ourselves that all forecasts are projections into an uncertain future. the fact that most professional forecasters perceive much the same benign short - term outlook that is our most likely expectation provides scant comfort. when the future surprises, history tells us, it often surprises us all. we must, as a consequence, remain alert to risks that could threaten the sustainability of the expansion. besides the chronic concern about a sharp spike in oil or natural gas prices, a number of risks can be identified. of particular importance to monetary policy makers is the possibility that our stance could become improperly calibrated to evolving economic developments. to be sure, the federal open market committee's current judgment is that its accommodative posture is appropriate to foster sustainable expansion of economic activity. but the evidence indicates clearly that such a policy stance will not be compatible indefinitely with price stability and sustainable growth ; the real federal funds rate will eventually need to rise toward a more neutral level. however, with inflation very low and substantial slack in the economy, the federal reserve can be patient in removing its current policy accommodation. in the process