2011 - i 2010 - 2010 - iii 2010 - ii 2010 - i 2009 - 2009 - iii 2009 - ii 2009 - i 2008 - 2008 - iii 2008 - ii 2008 - i - 6 source : cbt * the shaded region indicates the 70 percent confidence interval for the forecast. to sum up, although economic activity in the past quarter have evolved in line with our expectations, the significant increases in oil and processed food prices have led to an upward revision in our forecasts. the main message of the forecast is that preventing the materialization of potential second round effects and ensuring a steady decline in inflation towards the medium term targets, requires the monetary policy to maintain a cautious stance for a while. therefore, the path for the policy rates indicated above should not be perceived as a commitment on behalf of the cbt. i would like to once more emphasize that any new data or information regarding the inflation outlook may lead to a change in our policy stance. 4. risks and monetary policy distinguished guests, i would like to dedicate the last part of my speech to the upside and downside risks to inflation and monetary policy in the upcoming period. uncertainties about food and energy prices still continue. our baseline scenario is based on quite conservative assumptions for food and energy prices, implying that downside risks on these factors are as apparent as upside risks. in order to enhance the predictability of the monetary policy, in a period when uncertainties pertaining to oil and agricultural commodity prices continue, we deem it to be useful to share with the public the inflation and monetary policy outlook, which is based on alternative scenarios for food and energy prices. in our pessimistic scenario, we assume that food price inflation materializes at 16, 12 and 10 percent in 2008, 2009 and 2010 respectively ; whereas oil prices rise to usd 180 at the end of 2008, staying constant thereafter. additionally, adjustments in electricity tariffs are forecasted to be made in compliance with this assumption. assuming a gradual monetary tightening during the rest of the year, our forecasts under this scenario suggest that inflation will be 9. 1 percent at the end of 2009 and around 7 percent at the end of 2010 ( figure 15 ). in our optimistic scenario, we assume that food price inflation materializes at 12, 6, and 4 percent respectively, in the 2008 - 2010 period, whereas oil prices ease to usd 100 at the end of 2008, staying constant thereafter. additionally, adjustments in electricity tariffs are forecasted to be made in compliance with this

of modern risk management techniques as a part of regular financial intermediation process. in this context the basel ii, the new capital adequacy framework, is a very important outcome of the action taken in the international arena. although, the main aim of the original basel accord, which was applying institutionalized and international standards to the global financial system, has not changed in the basel ii accord, the basel ii puts more emphasis on the risk management aspect of the financial intermediation process. it is expected that a sound and resilient risk management in the banking sector would also lead to more efficient risk management in the real sector. therefore, in this way, as the financial system becomes more stable, less pro - cyclical and reinforced against shocks, more sources will be available for the real sector. however, it should also be considered that healthy and efficient risk management requires more than the three main pillars of the basel ii accord. a good understanding of the risks that a financial institution might encounter, a clear definition of risk taking procedures, compliance of risk taking decisions with the strategic goals of the institution, ensuring the risks are within the limits that were set by the management and adequate capital for given risk structure are other essential elements for a more significant advance in risk management in financial institutions. additionally, the basel ii is also significant due to its effect on the increase in transparency of the banking sector. as you may agree, the more transparency there is in the banking sector, the less probable systemic risk will be. all these steps will certainly provide a mechanism that is designed to allocate resources effectively, initially financial resources but ultimately real resources. hence this will contribute to the strength and efficiency of the economy as a whole. dear guests, having touched on the notion of financial stability, financial markets and banking sector in the world economy, what i intend to do now is to familiarize you to some extent with the turkish experience in this area. first of all, i will concentrate on developments in the financial system in turkey in the 90 ’ s. secondly, i will talk about the 2000 - 2001 crises. finally, i will describe the implementation, in terms of financial stability, of the central bank of turkey ’ s monetary policy. in order to give the appropriate point of view about the development of the turkish economy and especially the financial sector in the 90s, i ’ ll have to highlight the basic structure of that period in the turkish economy. the financial liberalization process that started in the 80s was