developments and decisions of credit rating agencies caused domestic financial markets to fluctuate over the third quarter of 2016. in this period, turkey attracted less portfolio flows than other emerging economies, while the turkish lira depreciated against the us dollar and the country ’ s risk premium inched up. overall financial conditions were supported by reduced tightness in monetary conditions, thanks to our policy actions, and macroprudential measures. the gradual fall in the marginal funding rate has partially passed through to loan and deposit rates while consumer loans have edged up in recent months. consumer inflation was in line with the forecasts of the july inflation report in the third quarter of 2016, with core goods and unprocessed food pulling underlying inflation down. domestic demand was subdued in the third quarter but leading indicators signal that economic activity will pick up by the fourth quarter of the year. moreover, despite downside risks to external demand due to geopolitical tensions, the external trade balance continues to improve amid increasing eu demand. on the other hand, developments regarding tourism revenues cause a slight widening in the current account deficit. 1. monetary policy and monetary conditions esteemed guests, we continued with monetary policy simplification in the third quarter on the back of improved core inflation indicators, the favorable course of the global risk appetite and the effective use of monetary policy tools. accordingly, we lowered the marginal funding rate to 8. 25 percent by three consecutive 25 basis point reductions in july, august and september. on the other hand, in october, we left the policy rates unchanged in view of less tight financial conditions and spillovers of other cost factors to the inflation outlook. hence, we kept the marginal funding rate, one - week repo auction rate and the overnight borrowing rate constant at 8. 25, 7. 5 and 7. 25 percent, respectively ( chart 3 ). as you all know, with simplification, we aim to provide funding via a single rate, which will bring short - term market rates closer to the funding rate. the simplification will contribute to the effectiveness of the transmission mechanism by enabling a more reliable assessment of the monetary policy stance. in this context, we mostly achieved our targeted gains. we are planning to finalize the monetary policy simplification within a reasonable schedule. i also would like to add that the direction and timing of the next step towards simplification will depend on the developments affecting the inflation outlook and financial stability. as cbrt, our main funding has continued to

trade, you can see that our imports are mainly commodities and intermediate goods, whereas industrial goods cover more than 90 % of our total exports. therefore, promoting turkey's competitiveness is the key to her future success. third, high domestic savings rate, which is high in emerging countries in asia, is quite low in turkey. it is around 20 %. we need to attract foreign savings to finance investments. it is not surprising to observe a strong and direct positive relationship in turkey between growth rate and current account deficit. of course, the upward trend in energy prices has also contributed to the widening of the current account deficit to 5. 8 % in 2007. the current account deficit is a structural problem and a source of vulnerability. however, turkey did not have difficulty in its financing in the last 6 years. in fact, the quality of foreign capital flows has improved sharply. the current account deficit can now be financed through foreign direct investments ( fdi ) and long - term capital inflows. the fdi inflows were in excess of usd 20 billion in each of the last two years, putting turkey among the top 5 developing countries in fdi inflows. fourth, turkey is one of the few countries with a “ convergence story ”. negotiations with the european union over the full membership status provide a major stimulus to policy makers to put turkey ’ s huge potential into life and complete the reform agenda. this agenda consists of next generation policies and reforms that focus on removing structural bottlenecks and improving the economy ’ s capacity for labor absorption, innovation, and competitiveness. dear guests, turkey has had a heavy structural reform agenda since 2001. however, continuation of structural reforms is of vital importance for the sustainability of economic gains achieved in recent years and for the resilience of the economy to further shocks in the future. the most important structural reform in the pipeline is the social security reform that is expected to significantly improve turkey ’ s fiscal balances in the medium and long term. it is also expected to contribute to our domestic savings rate. other prominent steps that should be taken include reducing the size of the unregistered economy and broadening the tax base, reforming the labor market to increase job creation and bringing the business environment to a level on par with international competition, re - designing the education system in order to make it consistent with labor demand and to raise the quality of labor force, privatizing the energy market and ensuring energy supply security. these steps together with macro