the impacts of factors affecting the medium - term inflation outlook have balanced each other out, and consequently there has not been a significant revision in the forecasts. i think comparison of the forecasts by the ones in the previous report period would help us to better understand the changes in forecasts. as i have mentioned earlier, considering a relatively stronger recovery in the domestic demand outlook and the second quarter gdp data, our output gap estimates have been revised upwards as of the second quarter of 2010 ( figure 29 ). the impact of the upward revision in the output gap was largely offset by the downward revision in the underlying inflation trend. consequently, there has not been a significant change in medium - term inflation forecasts and the monetary policy outlook compared to the previous report ( figure 30 ). in sum, assuming that policy rates would stay constant for sometime and remain at low levels for a long period, our revised forecasts suggest that aggregate demand conditions would continue to support disinflation for a while. under current conditions, inflation is expected to follow a marked downward trend over the next two quarters and decline to levels consistent with medium - term targets as of mid - 2011, as the adverse impact of the temporary price movements taper off. considering that the increases in unprocessed food and tobacco prices – which are beyond the control of monetary policy account for 5 percentage points of current annual inflation, it is clear that there is sizeable room for disinflation from this channel ( figure 31 ). factors that are beyond the control of monetary policy, such as fluctuations in unprocessed food prices and tax adjustments related to tobacco products, created significant forecast uncertainty by increasing the volatility of consumer inflation. this, in turn, has created a challenge for us to understand the underlying inflation correctly and to manage expectations. in this context, i believe that it would be useful in terms of transparency and predictability, to share with the public the assumptions we make relating to the said groups while making forecasts and our inflation expectations excluding these groups. accordingly, we assume that annual inflation in unprocessed food products will be 17 percent for end - 2010 and 9 percent for the following two years. meanwhile, the annual rate of increase in the tobacco and alcoholic beverages group index is expected to be 24 percent at end - 2010 and to hover around levels consistent with inflation targets in subsequent years. within this scope, we expect the inflation indicator excluding unprocessed food and tobacco and alcoholic beverages to follow

taking place. therefore, the restructuring program for the financial sector was launched with the goal of eliminating the distortions in the financial sector, improving its intermediary function and thus enhancing its competitiveness by international standards. banking regulation and supervision agency has become operational as a separate body to improve the banking supervision. the banks act was amended to bring the supervision standards in line with the eu directives and international best practices. moreover, the central bank law has been amended and instrumental independence of the central bank was provided and the primary goal of the bank was determined to be maintaining the price stability. to support this main goal, the bank was assigned with the duty of maintaining financial stability, and within this context, the central bank continued to assess the main risks and vulnerabilities of the financial system and to develop alternative policies against these risks by monitoring the financial system as a whole. in the last couple of years, turkey has shown a remarkable progress considering the soundness of the economy and the financial system. today, we have a stronger banking sector, which forms the basis of macroeconomic stability, as well. of course, considering the dynamic nature of the economies, the conditions do not always stay as what they are especially due to the increasingly interlinked global financial markets. in may - june 2006, international developments such as the deterioration in global liquidity conditions and the decrease in risk appetites of foreign investors towards developing countries, and the uncertainty occurring after it, adversely affected developing countries, including turkey. however, tight monetary and fiscal policies of the current economic program, on - going structural reforms and flexible exchange rate regime have increased the resilience of the system to shocks. additionally, the strengthened legal infrastructure and the improved risk culture in the banking sector have alleviated the adverse effects of may - june fluctuations. i believe nobody in this room would deny the fact that today almost all financial developments will have implications for all decision makers around the world - ranging from investors to policy makers. when a decision is made by the fed, ecb, bank of japan or china, it is a concern for most countries. i am sure you will all agree with me when i say, in today ’ s integrated markets when any country catches a cold there will be many others sneezing. in such an environment we are now increasingly aware of contagion risk. financial security and financial stability … within this framework, i would like to emphasize the close linkage between financial security and financial stability. in my