maintaining flexibility in interest rate decisions in favor of a downward bias and the recovery in risk perceptions in the second quarter of 2009. the downward trend in market interest rates also reverberated on medium term real interest rates causing real market interest rates to go down compared to the first quarter and to follow a course below the levels of the pre - crisis period ( figure 14 ). notwithstanding the fact that a decline in real interest rates in periods of stagnation is an anticipated change in healthy economies, i would like to underline that this has never been witnessed in the turkish economy before. in this regard, the current level of real interest rates is considered to be a favorable development as it verifies that the turkish economy is on the path of normalization. figure 13 : interest rate developments ( percent ) m a r k e t in te r e s t r a te s p o lic y r a te s source : ise, cbrt. figure 14 : medium - term real interest rates from the yield on government securities * ( percent ) * 2 - year real interest rates, calculated using 2 - year nominal interest rates from the yield curve and inflation expectations from the cbrt ’ s expectations survey. source : ise, cbrt. however, the central bank considers that market interest rates do not properly reflect the current stance of the monetary policy and statements, and that yield curves should be more horizontal compared to the current situation ( figure 15 ). in this regard, the proper monitoring and correct understanding of the monetary policy perspective by economic agents, which i will now go on to explain, bears great significance. figure 15 : yield curves * ( percent ) yield 1 apr 2009 16 july 2009 0. 5 1. 5 2. 5 term ( year ) 3. 5 * estimated by using the compound returns on the bonds in the ise bonds and bills market, based on the extended nelson - siegel ( ens ) method. source : cbrt. 3. inflation and monetary policy outlook distinguished guests, having summarized inflation and monetary policy developments in the second quarter of 2009, in this part of my speech, i would like to share with you the evaluation of the inflation outlook and monetary policy of the central bank of turkey in the upcoming period. in addition, i will also outline the central bank ’ s inflation forecasts presented in the inflation report, which is to be posted on our website shortly. firstly, i will briefly touch on the economic framework underlying these forecasts.

downward pressures arising from demand and cost conditions. this downward trend also prevailed in the second quarter of 2009 ( figure 10 and 11 ). the trend of consumer price inflation in developed markets turned negative in may / june 2009 and dropped to – 0. 56 percent in june. consumer price inflation in emerging markets also continued to lose ground to become 4 percent in june. in other words, inflation rates started to post a significant downward trend globally from the last quarter of 2008 onwards. figure 10 : cpi in developed and emerging figure 11 : core cpi in developed and markets emerging markets ( annual percentage change ) ( annual percentage change ) developed countries developing countries developed countries developing countries ( rhs ) source : bloomberg, cbt. - 1 2. source : bloomberg, cbt. monetary policy response after making brief remarks on inflation developments, i would now like to touch on the policies pursued by the central bank in this period. anticipating that inflation would decrease sharply following the last quarter of 2008, when the global financial crisis deepened, the central bank of turkey ( cbrt ) has focused on alleviating the harsh impact of the global financial crisis on the domestic economy and financial stability. throughout this process, the cbrt has delivered sizeable cuts in shortterm interest rates, while providing liquidity support to financial markets by following a countercyclical monetary policy. in this respect, considering the weak course of demand, the ongoing tightness in lending conditions and the improvement in the inflation outlook, the central bank continued the policy rate cuts, which started in november 2008, in the second quarter 2009 as well. thus, total policy rate cuts reached 850 basis points by july ( table 1 ). table 1 : monetary policy committee ( mpc ) decisions in 2008 and decision on interest mpc dates meeting rates ( percentage interest rate points ) 17 january 2008 14 february 2008 19 march 2008 17 april 2008 16 may 2008 17 june 2008 18 july 2008 14 august 2008 september 22 october 2008 november december 15 january 2009 19 february 2009 19 march 2009 16 april 2009 14 may 2009 16 june 2009 16 july 2009 - 0. 25 - 0. 25 no change no change + 0. 50 + 0. 50 + 0. 50 no change no change no change - 0. 50 - 1. 25 - 2. 00 - 1. 50 - 1. 00 - 0. 75 - 0. 50 - 0. 50 - 0. 50 15. 50 15. 25 15. 25 15. 25 15. 75 16. 25 16