gazi ercel : focus on inflation targeting opening remarks by mr gazi ercel, governor of the central bank of the republic of turkey, made at the conference on inflation targeting which was organized by the central bank of the republic of turkey in ankara on 19 october 2000. * * * i am very honored to present the opening remarks at this conference on inflation targeting ( it ) framework. first i would like to extend our appreciation to the lecturers of the conference who came a long way geographically, and considering the state of the economy they reach. the issues that are going to be addressed will be of great interest, particularly for developing and dis - inflating countries. the attendance of so many speakers from the central banks and international institutions is particularly motivating. this conference will review the country experiences on inflation targeting, particularly touching on the best ways to design policy objectives, responses, and implementation issues. some papers will consider not only inflation targeting framework, but also the case of economies during the shift to low inflation. let me begin my remarks by focusing on a framework that has been widely validated among academics and policymakers during the last 10 years. inflation targeting is an innovative approach to monetary policy being applied by a growing number of central banks of not only industrial but also emerging market countries of the world. now, more than ever, businesses are operating in a rapidly changing world. even the marginal uncertainties have become important. rapid changes in technologies, globalization and increasing competition are the challenges of the day for the business community. in the dynamic economic environment of the 1990s, business communities have been taking not only the risks of their new investments on technology, but the risk of inflation as well. in an inflationary environment, businesses and individuals end up spending more time and money either protecting themselves against inflation or trying to benefit from it. the rapidly changing environment affected not only the business decisions but the monetary polices as well. the traditional anchors for monetary policy and of central bank accountability - exchange rate targets and money aggregate targets - have fallen victim to liberalized capital mobility, inter - dynamic markets namely, by the introduction of new financial instruments, technology, financial globalization, and as a result unstable money demand. at this juncture, the role of the central banks and the framework of the monetary policy needed to be drawn more clearly. the ultimate goal of monetary policy has become reasonable price stability, which is generally understood to point the inflation at rates low enough not to affect economic decisions. thus,

of the monetary policy stance. the ongoing deterioration in the global risk appetite as of august led to an excessive depreciation in the turkish lira posing risks on the inflation outlook. in addition, sizeable price adjustments in administered products in october led the short - term inflation to increase above forecasts. in order to not to allow inflation expectations to deteriorate, the cbrt delivered an important tightening in monetary policy since october. accordingly, the interest rate corridor was widened upwards and the amount of the turkish lira funding through one - week repo auctions was adjusted and the average funding cost was raised significantly ( chart 5 ). chart 5. cbrt policies cbrt policy rates and overnight repo rates source : cbrt. cbrt funding and average interest rate source : cbrt. the monetary policy committee believes that the tight monetary policy stance should be maintained for a while to ensure that the inflation outlook is consistent with the medium term targets. moreover, due to the ongoing uncertainties regarding the global economy, we are of the opinion that maintaining a flexible monetary policy will be appropriate. the downward slope of the current yield curve signifies a tight monetary policy stance ( chart 6 ). additionally, loan interest rates have recorded a notable increase since october ( chart 7 ). as a consequence, loan growth rate declined to more reasonable levels towards the yearend ( chart 3 ). bis central bankers ’ speeches chart 6. chart 7. yield curve * consumer and tl business loan rates * ( percent ) calculated by the return on bonds quoted on the ise * flow data. * * 4 - week moving average. bonds and bills market using the extended nelson - siegel ( ens ) method. source : cbrt. source : ise, cbrt. overall, the last quarter of 2011 was marked by ongoing tightening in monetary and financial conditions and a pronounced deceleration in loans. 2. macroeconomic developments and main assumptions having climbed to 10. 45 percent at end - 2011, inflation was significantly above the target. as you all know, the article 42 of the central bank law stipulates that in the case of a significant breach of the inflation target, we are required to report to the government and announce to the public the reasons behind the breach of the target and the necessary measures to be taken. i would like to announce that we will publish the open letter that will be sent to the government today on our web - site at 12 a. m. now, i will touch upon