is largely due to the gold market dynamics, which is a temporary factor. in terms of the current account balance excluding gold, the correction that started in 2012 has continued into 2013, albeit more slowly ( chart 11 ). bis central bankers ’ speeches we expect real exchange rate and credit developments to support the economic rebalancing over the upcoming period. the real effective exchange rate depreciated after the recent nominal exchange rate developments and largely retreated from the levels that can be called excessively overvalued ( chart 12 ). we expect the current account balance to correct further in the forthcoming period amid expectations for a more acceptable rate of loan growth, a moderate final domestic demand growth and developments in the real exchange rate. this will cushion the turkish economy against the potentially high levels of global uncertainty in the upcoming period by strengthening its financial stability and supporting the re - balancing process. in sum, uncertainty continued to reign over financial markets in the third quarter of 2013 and financial conditions tightened ( chart 13 ). the tightening of the index is mostly due to weak capital inflows, rising loan rates and higher market rates. 2. macroeconomic developments and assumptions now, i will talk about the macroeconomic outlook and our assumptions on which our forecasts are based. first, i will summarize the recent inflation developments, and then continue with the domestic and foreign demand outlook. annual consumer inflation fell by 7. 9 percent in the third quarter of 2013, slightly overshooting the july inflation report forecasts ( chart 14 ). this overshooting was mainly attributed to a weaker turkish lira and higher unprocessed food prices. as a result, the main inflation indicators increased as well ( chart 15 ). the higher - than - projected inflation in the previous quarter was largely induced by the additional depreciation in the turkish lira ( charts 14 and 15 ). i think it shall be useful to inform you about how the exchange rate assumptions are made in the inflation report. traditionally, the inflation report takes the exchange rate realizations during the reporting month as given for the current quarter, and adopts a framework where exchange rates respond endogenously to the monetary stance and other economic developments afterwards. accordingly, the exchange rate estimations are based on the july average in the july inflation report. the turkish lira depreciated following the july inflation report, and this depreciation caused inflation to be higher than projected in the third quarter. this additional depreciation put an upward

year discounted bond returns derived from the yield curve, minus the 24 - month ahead inflation expectations from the cbrt survey of expectations. source : bist, cbrt. chart 7. chart 8. tl loan rates ( percent ) funding costs of banks ( percent ) source : cbrt. source : pdp, cbrt. chart 9. chart 10. growth rate of loans ( adjusted for exchange rate, 13 - week average, annualized, percent ) annual growth rate of loans ( percent ) source : cbrt. source : cbrt. bis central bankers ’ speeches chart 11. chart 12. current account balance ( cab ) * ( 12 - month cumulative, billion usd ) real effective exchange rate ( cpi based, 2003 = 100 ) * third quarter data includes july - august realization and september forecast. source : cbrt, turkstat. the dotted lines show the 2 percent annual trend starting from june 2003 = 100 and june 2003 = 90. source : cbrt. chart 13. financial conditions index * * for further details on financial conditions index, see cbt research notes in economics no. 12 / 31. source : cbrt. chart 14. chart 15. july 2013 inflation forecasts and realizations ( percent ) inflation forecast and realizations excluding unprocessed food, tobacco and alcoholic beverages ( percent ) * shaded region indicates the 70 percent confidence interval for the forecast. source : turkstat, cbrt. * shaded region indicates the 70 percent confidence interval for the forecast. source : turkstat, cbrt. bis central bankers ’ speeches chart 16. chart 17. core goods and services prices ( annual percent change ) core inflation indicators sca - h and sca - i ( annual percent change ) source : turkstat. source : turkstat. chart 1. 2. 5. chart 1. 2. 6. gdp and final domestic demand ( seasonally adjusted, billion tl, 1998 prices ) export - weighted global economic activity index * ( 2008q2 = 100 ) source : turkstat, cbrt. * for methodology, see inflation report 2010 - ii, box 2. 1 “ foreign demand index for turkey ”. source : bloomberg, consensus forecasts, cbrt. bis central bankers ’ speeches chart 20. oil and import price assumptions oil prices ( usd / bbl ) * shaded area indicates the forecast period. source : bloomberg, cbrt. import prices ( usd, 2010 = 100 ) * shaded area indicates the forecast period. source