undergoing the process of balancesheet repair, limiting the contribution of private consumption and investment to the economic recovery. on the other hand, the relatively less affected emerging economies are recovering steadily amid robust domestic demand ( figure 1 ). bis central bankers ’ speeches this growth discrepancy between advanced and emerging economies and its implications for the turkish economy became the key determinants for the central bank of turkey ’ s ( cbrt ) monetary policy strategy in the fourth quarter. exceptionally loose monetary policies adopted by advanced economies to eliminate the downside risks on economic activity not only boosted global liquidity but also stimulated the search for yield, which encouraged more capital flows into emerging economies. moreover, the weak recovery in developed economies – turkey ’ s main export destinations, dampened foreign demand growth ( figure 2 ). low interest rates across the globe, soaring imports driven by strong credit growth amid increased short - term capital inflows, and weaker foreign demand caused the current account deficit to widen rapidly in 2010. all of these developments prompted the cbrt to adopt a strategy, which partly targets financial stability besides the main objective of price stability, parallel to the conditions referred to as the “ new normal ”. in this context, as stated previously, the cbrt has actively begun to use tools such as required reserves and liquidity management, in addition to the one - week repo auction rate, the main policy instrument. 1. inflation developments having summarized the global economic conditions and the implications of this outlook on the monetary policy, i would now like to inform you about the inflation developments of the last quarter. as you will recall, we underlined in the october 2010 inflation report that the increases in unprocessed food and tobacco prices – which are beyond the immediate control of the cbrt – added about 5 percentage points to annual inflation, and suggested that these items would leave sizable room for disinflation. indeed, inflation dropped by 2. 83 percentage points, yielding a rate of 6. 4 percent, meeting the year - end inflation target. as predicted in the previous report, the decline in inflation was due to the sharp drop in unprocessed food prices. accordingly, the annual rate of increase in food prices was 7. 02 percent at the end of 2010, undershooting the october estimate of 10. 5 percent. the slowdown that occurred was sharper than we expected. these developments in unprocessed food prices explain the almost one percentage point deviation in short - term inflation forecast

of the policy mix depends on the factors affecting price stability and financial stability. although it is too early to assess the success of these policies, initial impact so far seems promising. conclusion the recent crisis put front and center the rising economic power of emerging countries. it has also demonstrated the vulnerabilities within the global system, especially across financial markets. financial stability becomes a major concern for policy makers, which has the potential to reshape the monetary policy framework of central banks. significant steps have been undertaken, but significant progress is still needed to tackle global imbalances. that involves not only revisiting economic policies, but also economic and institutional infrastructure that shapes them. as the quest for a new global order continues both in theoretical and practical levels ; the predictability, balance and sustainability of the new global order will depend on the cooperative and coordinated efforts to establish a well - represented infrastructure. thank you for your attention. bis central bankers ’ speeches