a ) opportunities and challenges we define globalization as more integrated financial markets, economies and trade, higher factor mobility, and spectacular change in information technology leading to the spread of knowledge throughout the world. i, personally, consider globalization to be both a beneficial and a challenging, inevitable, irreversible process for the world economy and the international financial system. globalization and liberalization of financial markets bring a variety of changes, presenting opportunities as well as risks both in economies and financial systems throughout the world. one fact is quite clear : the undeniable benefits of globalization are only available to the countries that best manage their economies. one obvious benefit of globalization is that active international capital flows improve the efficiency of the allocation of world financial resources. as the world market economy has become more globalized, we have witnessed rapid growth in world trade, leading to a higher standard of living during the 1980s and 1990s. in plain language, competition, productivity gains, lower trade barriers and lower cost of external financing on a worldwide basis are the key factors that have led to growth in world trade and rising standards of living. globalization also has increased and enhanced competition worldwide. there are several factors behind this consequence. ( a ) firstly, the integration of world markets and rapid technological change led to efficiency gains and growth driven by the lower transaction and information costs. these in turn increased competition through lower costs and higher market efficiency, higher productivity, lower barriers to entry, and new investment opportunities. geographic distance is no longer a factor that limits the provision of goods and services. hence, competition both in the industrialized and developing countries has reached almost the same level. at this point, it is worth noting that many developing countries, particularly emerging market economies, have actively participated in the world trade and global economy over the last two decades. the presence of emerging market countries, particularly the asian economies, is growing, and their share in world trade has increased significantly. ( b ) secondly, the importance of non - bank financial institutions in the financial intermediation process has increased. the main examples of these institutions are securities firms, insurance companies and mutual funds. therefore, we can say that the higher the level of international competition, the higher the economic growth, the higher the income level, the higher the quality of products and thus the higher the living standards the globalization process would bring. globalization reorganized some concepts such as stabilization, risk - taking, supervision and regulation of banking systems, market discipline, public guaranty on deposit and moral hazard.

- i 2006 - iv 2006 - iii 2006 - ii 2005 - iv 2005 - iii 2005 - ii 2005 - i 2006 - i source : turkstat, cbrt. figure 7 : contributions to annual gdp growth ( percentage points ) final domestic demand net exports gdp 2007 - iii 2007 - ii 2007 - i 2006 - iv 2006 - iii 2006 - ii 2006 - i 2005 - iv 2005 - iii 2005 - ii 2005 - i - 5 source : turkstat, cbrt. despite the unfavorable developments in food prices, almost a year after monetary tightening, core inflation indicators displayed a significant deceleration starting from the second quarter of 2007. the effects of tightening were clearly visible on the prices of durable goods and services consistent with the slowdown in the economic activity in the related sectors. the weaker demand, coupled with a strong domestic currency, helped durables inflation to come down significantly ( figure 8 ). in this respect, services inflation also eased remarkably, declining by 3. 6 percentage points throughout 2007. the improvement in services inflation spread across all sub - items. especially, the fall in rent inflation, the stickiest component of services inflation, was significant ( figure 9 ). figure 8 : durable goods prices ( annual percentage change ) - 3 - 6 - 9 - 12 durables ( excl. gold ) furniture electrical & non - electrical appl. automobile source : turkstat, cbrt. figure 9 : services group sub - items ( annual percentage change ) transport services rent restaurantshotels other services source : turkstat, cb. the significant deceleration in the core inflation indicators set the ground for a relatively less restrictive monetary policy. hence, we decided to start the measured easing cycle in september 2007 with a 25 basis - points cut, while continuing with 50 basis - points in the consecutive three meetings. at this point, i have to underscore that monetary policy remained restrictive even after these rate cuts. nevertheless, we underlined the need to remain cautious against the risks related to potential second round effects of food and energy prices as manifested in the sticky inflation expectations ; and reduced the pace of rate cuts in january 2008. consequently, policy rates were lowered by 200 basis points in the period between september 2007 and january 2008 ( table 2 ). table 2 : monetary policy decisions in 2007 and 2008 mpc meeting dates interest rate decisions interest rates 16 january 2007 15 february 2007 15 march 2007 18 april 2007 14 may 2007 14 june 2007 12 july 2007 14 august 2007 13 september 2007