, our baseline scenario envisages inflation to reach the target of 5 percent by mid - 2013 ( chart 17 ). however, the target might be attained by the end of 2012, should the risk appetite improve markedly in the forthcoming period and the capital flows towards emerging economies re - accelerate, leading to a stronger appreciation of the turkish lira than assumed in our baseline scenario. bis central bankers ’ speeches at this point, i would like to emphasize that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. therefore, assumptions regarding the monetary policy outlook underlying our inflation forecasts should not be perceived as a commitment on behalf of the cbrt. 4. risks and monetary policy in the last part of my speech, i would like to share our assessment of the risks on inflation outlook. the first of these risks is the possibility of second round effects that might stem from inflation hovering at high levels in the short term. three - month accumulated increase in consumer prices in the final quarter of 2011 was 5. 66 percent. this will stay in annual inflation figure for another three quarters. therefore, it is highly likely that annual inflation will stay significantly above the target until the last quarter of the year, even if the underlying trend in the forthcoming period eases to levels consistent with the target. although the monetary tightening delivered by the cbrt since october has reduced the possibility of second round effects, i would like to emphasize that inflation expectations and pricing behavior will be monitored closely and necessary measures will be taken to keep medium - term inflation outlook consistent with the target. ongoing uncertainties regarding the global economy call for a continuation of a flexible approach in monetary policy. the medium term outlook presented in the report assumes that problems in the euro area will be resolved gradually and the global outlook will not deteriorate further. however, the probability that the solution of the problems may take a more protracted and painful process poses downside risks regarding the global growth and risk appetite. on the other hand, perceptions regarding the global economic outlook may turn more favorable than expected, should the measures taken towards the solution are completed sooner and more decisively than envisaged. such a situation, coupled with the ongoing quantitative easing policies pursued by the central banks of advanced economies, may improve risk appetite and re - accelerate capital flows towards emerging economies. overall, ongoing problems in the euro area and uncertainties regarding the effectiveness of measures aimed at solving these problems suggest that global financial markets will continue to be volatile in

stronger. notwithstanding a relative improvement in the risk appetite as of the onset of 2012, uncertainties regarding the solution of euro area problems persist. coupled with the increased risk of contagion, this feeds into the fragility in global financial markets, highlighting the significance of a flexible monetary policy framework. bis central bankers ’ speeches chart 1. revisions to growth rate forecasts in advanced and emerging economies * ( percent, gdp - weighted average ) * dashed lines show the forecasts using the expectation figures in the previous quarter while the dotted lines show the revised forecasts using the updated expectation figures. advanced economies : u. s. a., eu, and japan. emerging economies : china, india, brazil, south korea, mexico, russia, turkey, poland, indonesia, south africa, thailand, malaysia, israel, czech republic, hungary, colombia, philippines. source : consensus forecasts, cbrt. 1. monetary policy developments and monetary conditions the central bank of the republic of turkey ( cbrt ) has aimed at engineering the economy gradually towards a more balanced growth composition against the macro financial risks that aggravated in the first half of 2011. accordingly, with the support of other institutions, necessary measures were taken to bring loan growth rates to reasonable levels. furthermore, policies were geared towards preventing exchange rates from moving away from economic fundamentals excessively on either side ( charts 2 and 3 ). bis central bankers ’ speeches chart 2. chart 3. tl and emerging market currencies * loan growth rate * ( 13 - week moving average, annualized, percent ) ( against the usd, value of 01. 10. 2010 = 1 ) * average of emerging market currencies including brazil, chile, czech republic, hungary, mexico, poland, south africa, indonesia, south korea and colombia, against usd. increases denote depreciation of the currency. * adjusted for the exchange rate effect. source : cbrt. source : bloomberg, cbrt. data released for 2011 point that the desired rebalancing process in the economy has already started. accordingly, the contribution of net exports to growth increased notably, and the current account balance posted a noteworthy improvement in the second half of the year ( chart 4 ). chart 4. current account balance ( seasonally adjusted, billion usd ) * estimate for december. source : turkstat, cbrt. bis central bankers ’ speeches despite the attainment of favorable outcomes regarding macro financial risks, soaring inflation in the last quarter required a revision