and the deterioration in risk appetite led to capital outflows from emerging economies. this outlook not only fed into short - term inflationary pressures in emerging economies, but also highlighted concerns over growth and financial stability. bis central bankers ’ speeches 1. monetary policy developments and monetary conditions the policies that we, as the central bank of the republic of turkey ( cbrt ), have been implementing since end - 2010, aimed at gradually rebalancing the economy towards a robust growth composition without hampering the medium - term inflation outlook. accordingly, we pursued policies to prevent excessive deviation of exchange rates from economic fundamentals in either direction, while also taking the necessary measures with the support of other institutions to ensure reasonable levels in loan growth rates ( chart 2 and 3 ). as a consequence of measures taken by the central bank and the banking regulation and supervision agency ( brsa ), loan rates continued to rise in the third quarter ( charts 4 and 5 ). a marked slowdown is observed in credit growth owing to the lagged effects of bis central bankers ’ speeches measures taken and a deceleration in economic activity. despite the role of seasonal factors, this slowdown is more apparent compared to that of recent years ( chart 3 ). accordingly, the exchange - rate - adjusted annual credit growth rate is expected to converge at around 25 percent by year - end, as envisaged. in the baseline scenario presented in the july inflation report, global economic activity was assumed to continue to improve gradually ; however, it was also highlighted that downside risks on the global economy were growing stronger. indeed, right after the publication of the report, risk perceptions deteriorated rapidly and debt problems in the euro area further intensified changing the baseline scenario. in response, we introduced a comprehensive package of measures to contain the potential adverse effects of these developments on financial stability and economic activity. the objective of these measures was to supply liquidity to markets in a timely, controlled and effective manner in the event of financial turmoil that may be driven by developments in the global economy. moreover, we opted for a modest cut in the policy rate in order to contain the risk of recession in domestic economic activity that may be posed by escalating global economic problems. moreover, turkish lira required reserve ratios were adjusted in order to extend the maturities of liabilities of the banking system ( chart 6 ). the mounting uncertainties facing the global economy since the july inflation report and accelerating capital outflows from emerging economies called for a series

and if inflation is poised to rise above the target, the bank would raise its key policy interest rate. this, in turn, would push up other interest rates and help to cool off demand. conversely, if the economy is operating below its production capacity, and inflation is poised to fall below the target, the bank would lower its key policy rate, to help stimulate demand. so, by maintaining low and stable inflation, monetary policy also promotes greater stability in economic output. i should add that since canada adopted its inflation - targeting system in 1991, our track record has been excellent. inflation has averaged very close to 2 per cent and has remained within the target range, with rare exceptions that were due mainly to large swings in the prices of oil and natural gas. and we have seen evidence that our symmetric approach to inflation targeting has helped to smooth the peaks and valleys of the business cycle. i should also add that a flexible exchange rate is a critical part of our monetary policy framework. we do not have a target or preferred exchange rate for the canadian dollar. but it is an important relative price in our economy. a floating currency helps us to achieve our inflation target and can act as a shock absorber to cushion our economy from the effects of events both inside and outside canada. i ’ ll say a bit more about this in a few moments. with that as background, let ’ s now look at the ways in which canada ’ s economy is responding to global economic developments. as i mentioned, the canadian dollar has appreciated sharply and commodity prices have risen dramatically over the past couple of years, though both have been relatively stable in recent months. canada ’ s terms of trade - that is, the ratio of the prices that canadians receive for their exports to the prices that they pay for their imports - have improved by about 15 per cent since late 2001, generating higher real incomes and stronger domestic demand in canada. how has the canadian economy reacted to these higher prices and stronger demand? in the bank ’ s april monetary policy report, we noted that we have seen increased business investment spending in oil and gas extraction, other mining activity, and wood - product manufacturing. we are also seeing rising investment in sectors that are not very exposed to international trade, such as electric power generation, finance and insurance, and information and cultural industries. in these cases, firms are reacting to strong growth in canadian domestic demand. as well, we ’ ve had very strong investment in residential housing. but there are other sectors, highly