durmus yılmaz : global challenges and local response – monetary policy in turkey address by mr durmus yılmaz, governor of the central bank of the republic of turkey, at a congress organised by the turkish economic association and the international economic association, istanbul, 25 june 2008. * * * dear guests, first of all, i would like to welcome you all to turkey. i am delighted to be here to address such a distinguished audience in istanbul. i would like to thank the turkish economic association and the international economic association for organizing this congress. let me start my talk with the words of josiah charles stamp, one of the former governors of the bank of england in 1920s : “ it is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities. ” this quote will also be the theme of my speech today. distinguished guests, although globalization had started in the second half of 1980 ’ s, it has not yet reached its peak and we are still witnessing its evolution. as thomas friedman ’ s once said, globalization is making the world flatter. we witnessed record high growth rates around the world in that period ; although there was also notable variation in the growth performances across countries. it will not be wrong to argue that globalization could be a powerful tool that may contribute to sustained development if it is combined with compatible policies. however, we should also keep in mind that globalization also presents some challenges and thus, it has made the job of policy - makers more difficult. firstly, i would like to underline the concept of financial globalization. thanks to financial liberalization and improvements in information and communication technologies, significant amount of capital has been flowing into developing countries, especially to those that offer high growth potential – helping these countries achieve relatively high growth levels. in the post - war period when globalization was not a popular buzzword, high growth rates were also observed in a number of countries, usually in the south asia. however, these countries had something in common, which was high rates of savings. in countries like turkey, where more than half of the population is 30 years old or younger and where savings rates are comparatively low ; foreign savings, and therefore capital inflows are needed to maintain high levels of growth. in this respect, financial globalization has contributed to the convergence process among countries. financial liberalization has also led to amplification of new and more complex financial products. as a side effect, these financial products have introduced new risks and

the dampening effect of tight monetary policies implemented globally and restrictive financial conditions on growth has become more salient since the second half of last year. following a gradual decline, global growth weighted by our exports remained flat in the last quarter, compared to the previous reporting period. commodity prices continue to be driven by the outlook and composition of global growth, geopolitical risks, financial conditions, and supply - side factors. commodity prices excluding energy have continued their limited decline since the previous reporting period. over this period, energy commodity prices, in particular natural gas prices, have declined. while oil prices have declined significantly since the previous reporting period, they remain highly volatile in the short term. against this backdrop, the downtrend in global inflation has accelerated in the last quarter of the year owing to energy prices. core inflation in many economies has also been falling in recent months. meanwhile, inflation hovers above the targets globally. although risks are still alive, the fall in inflation is expected to continue over the year. under this inflation outlook, the central banks in advanced economies have indicated that the current level of policy rates is adequate to achieve their inflation targets. the timing and pace of the upcoming rate cuts have become more important. amid the improvement in the inflation outlook, interest rate cuts continue in a number of emerging economies. compared to the previous reporting period, market expectations for the central banks of advanced economies to start cutting interest rates earlier have strengthened. on the other hand, given inflationary risks, it is assessed that central banks will manage the rate - cutting process gradually and that monetary tightness will be maintained across the board. in the last quarter of 2023, the global risk appetite rebounded strongly and portfolio inflows to emerging markets increased. however, since the beginning of this year, portfolio inflows have slowed down as a result of the advanced economy central banks'more cautious forward guidance on interest rate cuts. 2 / 12 bis - central bankers'speeches esteemed guests, now, i would like to present our assessments on the inflation developments in turkiye. first of all, i will discuss the factors that affected inflation and pricing behavior during the tightening process up until the end of 2023. next, i will turn my focus to january, which is characterized by a strong time - dependent price - setting tendency, and hence, differs from other months in this regard. moreover, i will convey our assessments on the factors that will impact inflation in the upcoming period. in the last quarter