challenge in the years ahead. i believe the key solution here lies in productivity increases in agriculture and energy in the medium term. regarding agriculture, this necessity is much more evident in emerging markets – in order to keep up with the demand growth, considering the higher share of food in the consumption basket. rapid employment shift from agriculture to manufacturing & services, and the labor - intensive structure of production necessitates a reformation in this sector. likewise, a similar productivity improvement is inevitable for energy both in emerging and developed economies. however, given the limited supply of resources, efficient energy use gains a crucial role at this point. according to the international energy agency, improved energy efficiency in buildings, industrial processes and transportation could reduce the world ’ s energy needs in 2050 by one third ( sophie hebden : “ invest in clean technology says iea report ”, 2006 ). in this context, energy efficiency together with renewable energy, energy obtained from natural resources, are said to be the twin pillars of sustainable energy policy. bis central bankers ’ speeches dear participants, against this backdrop, in the remaining part of my speech, i would like to share our experience in dealing with commodity price volatility, especially in the context of monetary and fiscal policy. volatility in oil and other commodity prices has both direct and indirect effects on inflation. in this manner, there is a debate in the literature on how a central bank should respond to the changes in commodity prices. since oil and other commodity - based products are an important component of consumption basket, it is impossible to avoid the so called “ firstround effects ” of commodity prices, which in turn translates itself into inflation volatility. however, temporary movements in commodity prices do not affect the mediumterm inflation trend, as long as they do not disrupt the general pricing behavior. therefore, central banks acting on a medium - term perspective, typically do not give sharp policy responses to these primary effects as doing so may have strong negative impacts on the social welfare. on the other hand, a persistent increase in commodity prices may adversely affect inflation expectations and therefore pricing behavior of economic agents. this may entail prolonged increases in general price level and, accordingly, high costs associated with increasing inflation. therefore, it is important for central banks to pay close attention to the evolution of inflation and inflation expectations in order to contain the second - round effects of the increases in commodity prices. at the central bank of turkey, we frequently state that we will not react

. needless to say, the course of commodity prices has implications on many other key macro variables. for example, as a net energy - commodity importer, turkey ’ s dependence on energy imports makes the current account balance more sensitive to volatility in commodity prices. recent uncertainty surrounding the energy market is not comparable to any other period in the near history. moreover, there is a significant risk that commodity prices stay volatile due to uncertainties regarding global economy and the exceptionally loose monetary policies across the globe. therefore, medium - term outlook for commodity prices is unusually hard to predict. in the long term, supply conditions and structural policies should adjust to stabilize the energy and other commodity prices. the recent concrete steps as part of the medium term programs in turkey, aiming at curtailing the dependence on energy imports by switching towards domestically produced and renewable energy sources, have important implications also for decreasing the sensitivity of current account balances to international price movements. the key question here is how to smooth out the impact of the volatility in energy and other commodity prices on the domestic economy in the short to medium term, while there is a heightened degree of uncertainty regarding financial and real factors. introducing a fixed element into the sales tax on gasoline or other energy prices might be an effective method in dealing with this issue. in the case of turkey, for example, there are two types of taxes on the retail gasoline prices. the first one is the vat that is proportional to the price ; the second one is the special consumption tax ( sct ) that is a fixed tax. the sct forms a significant portion of the retail gasoline prices and attenuate the volatility of final prices that consumers face, since it is not a proportional tax. this tax structure not only smooths out the fluctuations in retail gasoline prices but also avoids the need for subsidies, discretionary choices and associated fiscal costs. this conference serves as a perfect platform to discuss alternative methodologies on these issues. once again i would like to welcome you all to istanbul and hope that we will address some of the challenges regarding commodity prices and the global economy in this meeting. thank you. bis central bankers ’ speeches