. 75 16. 75 16. 75 16. 75 16. 25 15. 00 13. 00 11. 50 10. 50 9. 75 9. 25 8. 75 8. 25 source : cbrt. the proper analysis of global trends and country - specific risk perceptions bears great significance in establishing a better understanding of recent monetary policy decisions. with the global spillover effect of the crisis as of the last quarter of 2008, central banks of emerging markets opted for policy rate cuts above expectations with a view to restricting the negative effects of the global crisis on economic activity. in this period, countries with relatively stable financial markets and lower deterioration in risk premia had more room for maneuver in their monetary policy implementations enabling them to make larger policy rate reductions. raised awareness regarding the relative soundness of turkey ’ s financial system in this period, coupled with the expected decline in inflation, set the ground for rapid and bold rate cuts. acting accordingly, the central bank of the republic of turkey lowered policy rates more than any other emerging market central bank operating within an inflation targeting framework ( figure 12 ). figure 12 : change in policy rates of developing countries and the relationship between policy rates and risk premium change in policy rates ( percent, 1 sep 08 - 24 july 09 ) 0. 5 change in risk premium and policy rates ( 1 sep 08 - 24 july 09 ) - 0. 5 1. 5 macaristan change in policy rates ( percent ) - 1. 5 - 2 - 2. 5 - 3. 5 - 4 - 4. 5 - 5. 5 rusya romanya malezya cek endonezy cumh. tayland a peru polonya g. kore meksika brezilya g. afrika kolombiya - 6 - 6. 5 - 8 - 7. 5 turkey chile columbia south brazil israel mexico south peru poland thailand iceland taiwan indonesi china czech malaysia romania ukraine russia hungary - 8. 5 - 10 - 100 sili turkiye - 50 change in cds ( basis points ) source : bloomberg and cbrt. data releases on inflation and economic activity since the inception of the cycle of rate cutting and the favorable course of risk indicators have vindicated these preemptive monetary policy decisions and strengthened the impact of policy decisions on expectations, gradually bringing market interest rates down to historically low levels ( figure 13 ). the central bank assesses that the decline in market interest rates is also attributable to policy rate reductions, as well as

durmus yilmaz : managing liquidity in the islamic financial services industry speech by mr durmus yilmaz, governor of the central bank of the republic of turkey, at the conference on “ managing liquidity in the islamic financial services industry ”, organised by the islamic financial services board ( ifsb ), istanbul, 6 april 2011. * * * distinguished participants, esteemed guests and valued members of the press, welcome to the conference on managing liquidity in the islamic financial services industry organized by islamic financial services board ( ifsb ). as the central bank of turkey, we are very pleased to host this special event. i would like to extend my appreciation to the ifsb for organizing this timely conference in this beautiful city. i believe that this conference will be a productive platform for fruitful discussions on islamic liquidity management practices. in this opening speech, i will share my thoughts regarding managing liquidity in islamic finance and the challenges ahead. distinguished participants, as you all know, unconventional polices and extraordinary measures have been put in place by central banks and fiscal authorities during and after the financial crisis. as liquidity concerns played a major role in the deepening of the crisis, intense discussions on a new structure in global liquidity management have dominated the global arena. in this context, liquidity management issues in the islamic financial services deserve a special attention. successful implementation of a solid liquidity management system can be the key for sustaining the rapid growth of the industry. the basic principle of islamic banking is the sharing of profit and loss and the prohibition of usury. simply put, interest is prohibited, but profit sharing is not. the distinctive elements of islamic finance could be listed as : its ethical element ( the prohibition of usury and exploitation of the borrower ), the preference for trading in real assets ( rather than synthetic products ), partnership between the investor and investee, and its governance structure ( requiring a shariah council ). although their interest - free business model makes participation banks more stable compared to conventional banks by protecting them from interest rate risk, it actually makes their liquidity risk management more difficult. liquidity risk is directly related to the ability of a bank to maintain sufficient funds to meet its commitments, which may, in turn, be related to its ability to attract deposits or sell its assets. as institutions engaged in many kinds of banking activities, islamic banks also have to meet their liquidity needs and obligations to ensure the smooth running of their business.