which consists of a combination of short term interest rates, reserve requirement ratios and interest rate corridor. we seek to use these instruments in the right bis central bankers ’ speeches combination in order to cope with both inflation and macro - financial risks. the monetary policy stance in this framework is not only determined by the path of policy rates, but as a mixture of all the policy instruments, as i just mentioned. just like the conventional inflation targeting framework, the policy is forward looking and contingent on economic outlook. the course of the policy mix in the forthcoming period will depend on the factors affecting price stability and financial stability. in sum, we are going through a period in which central banks policies have to be creative in dealing with the “ new normal ”. however, it is also important to consider country specific features in designing these strategies. in our part, we believe that a lower policy rate and a wider interest rate corridor combined with higher required reserve ratios may serve as an effective policy mix in dealing with rapidly increasing macro imbalances driven by short term capital inflows. thank you. bis central bankers ’ speeches

durmus yilmaz : in search of an appropriate policy mix for emerging economies – monetary policy in turkey in the aftermath of the global financial crisis speech by mr durmus yilmaz, governor of the central bank of the republic of turkey, at the euromoney central and eastern european forum, vienna, 18 january 2010. * * * dear guests, during the global financial crisis, almost all countries focused on containing potential adverse effects of the crisis on domestic economy ; turkey was not an exception. following the intensification of the crisis, the central bank of turkey ( cbt ) delivered sizeable and frontloaded cuts in policy rates, reaching 1025 basis points from november 2008 to november 2009. during this period the cbt not only cut policy rates rapidly, but also pursued a counter - cyclical liquidity policy to support the functioning of money and credit markets, thereby strengthen the impact of the rate reductions on economic activity. these efforts were successful in bringing back turkey on a strong recovery track. the healthy household balance sheets and solid banking system allowed a rapid rebound in domestic demand. starting from mid - 2009, the turkish economy has been facing a domestic demand driven rapid recovery. meanwhile, strengthening capital inflows has further exacerbated the divergence between the domestic and external demand, creating new policy challenges. rapidly widening current account deficit coupled with short term capital inflows and exchange rate appreciation called for a different approach to monetary policy. in order to cope with this new situation, we have slightly modified our existing framework of inflation targeting by explicitly highlighting the increasing role of financial stability in our objective function. accordingly, first we have announced the details of our exit strategy from crisis measures in april 2010. as a first step, we have normalized the liquidity support facilities and brought back the try reserve requirement ratios to pre - crisis levels of 6 percent. second, we started to highlight the macro financial risks and contingent policy responses. for example, we have stated through our policy documents that, if divergence in growth rates between domestic and external demand continues in the forthcoming period, and if this pattern of growth coexists with rapid credit expansion and deterioration in the current account balance, it would be necessary to utilize other policy instruments such as reserve requirement ratios and liquidity management facilities more effectively. the primary objective of the cbt is to achieve and maintain price stability. however, the recent crisis has taught us that this single objective may not be enough for attaining macroeconomic and financial