durmus yılmaz : recent economic and financial developments in turkey speech by mr durmus yilmaz, governor of the central bank of the republic of turkey, at the press conference for the presentation of the inflation report, ankara, 30 april 2009. * * * distinguished guests and members of the press, welcome to the press conference for the presentation of the april 2009 inflation report, one of the most important communication tools of the inflation - targeting regime. the report typically elaborates global and domestic macroeconomic developments and presents the medium - term inflation forecasts revised in line with the previous quarter developments. it also presents six boxes examining the recent monetary policy decisions and the relevant economic developments. now, i would like to give you a short summary of our evaluations and the central bank ’ s revised inflation forecasts in the inflation report, which will be posted on the cbt website today. 1. inflation developments distinguished members of the press, the world economy has been undergoing a period dominated by dynamics quite unlike to those of previous years. with the loss of confidence resulting from the on - going financial crisis, the global economy entered a significant contraction trend after a long period of time. impacts of the crisis on real economic activity deepened in the first quarter of 2009. thus, inflationary pressures, which were perceived as a major concern until the last quarter of 2008, were overtaken by fears of deflation in developed countries in the first quarter of 2009. in this context, i would like to start my speech by once more underlining that inflation developments in turkey in the first quarter of 2009 should be considered in the light of these global conditions. in the first quarter of 2009, consumer prices increased by 1. 05 percent and annual consumer inflation became 7. 89, remaining within the limits of the uncertainty band. backed by the significant slowdown in economic activity and improvement in cost - based effects, the decline in inflation gained ground and spread across all subgroups. in addition, the short - term exchange rate pass - through on consumer prices remained limited in the previous quarter. the contribution of all main groups excluding tobacco and gold, which posted high - rated price hikes to annual inflation weakened in the first quarter of the year. while the contribution of food and energy to annual inflation decreased especially due to the marked decline of annual inflation in energy prices, the contribution of services prices also continued to diminish owing to the fall in costs and the slowdown in domestic demand ( figure 1 ).

will limit the stock amount of the weekly funding we provide through the quantity auction method at 4. 5 percent, not to exceed tl 10 billion until the year - end. moreover, issues regarding the implementation procedures besides the funding amount to be made under this method as of 2014 will be elaborated on in the monetary and exchange rate policy for 2014 to be published in december 2014. under this outlook with a gradual increase in predictability, i would like to remind you that our monetary policy will remain cautious until the inflation outlook becomes consistent with the medium - term projections. in the third quarter, interest rates were down from the previous reporting period across all maturities, with a larger decrease in the shorter end, while the yield curve trended upwards ( chart 5 ). this is due to the slightly improved global risk sentiment and turkey ’ s falling country risk premium as well as the cbrt ’ s monetary policy strategy to reduce interest rate uncertainty which had a greater impact on short - term rates. meanwhile, 2 - year real rates declined on falling nominal rates and rising inflation expectations ( chart 6 ). loan rates that trended down in the first half of 2013 started to go up by the third quarter ( chart 7 ). this quarter - long uptrend reflects global financial developments and the cbrt ’ s july and august tightening of overnight lending rates via the interest rate corridor. moreover, deposit rates, currency swap rates, the cbrt ’ s average funding rate as well as bill and bond rates issued by banks, which all represent the turkish lira funding costs of banks, increased as well in the same period ( chart 8 ). after a more robust first half compared to the average of past years, loan growth has come down to levels similar to the average of those years as of august ( chart 9 ). rising loan rates due to recent financial fluctuations and our cautious monetary stance have contributed to this slowdown. yet, the annual rate of loan growth still recorded a striking 25 percent in the third quarter ( chart 10 ). we envisage the cautious monetary stance, recent macroprudential measures and weak capital inflows to bring the loan growth rates gradually to more plausible levels in the forthcoming period. the current policy framework has a favorable impact on the current account balance. after hitting an all - time high at the end of 2011, the current account deficit saw a major correction in 2012. although there has been some deterioration in the 12 - month cumulative current account deficit since early 2013, this