Dr. Erdem Başçı
Governor

Foreword

The Turkish economy has witnessed many important developments over the last few years. The Gross Domestic Product (GDP) increased by 72 percent in real terms in the third quarter of 2014 from 2002. Over the same period, thanks to prudent monetary and financial policies, significant progress was made in disinflation; inflation rates were brought down to single digits and inflation has hovered in the 6-10 percent interval in the last 10 years. On the back of the sustained budget discipline in the public sector and prudential borrowing in the private sector, real interest rates decreased below 5 percent and remained at around 2 percent. In the framework of the floating exchange rate regime implemented since 2001, the CBRT employed a range of instruments to achieve a cumulative USD 112-billion rise in the CBRT foreign exchange and gold reserves.

With the aim of steering the economy towards a stable growth path and attaining a sound external borrowing composition, the CBRT, by end-2010, designed and started implementing a new monetary policy framework taking into account macro- financial risks as well. This new policy framework, which incorporated both conventional instruments and unconventional ones (such as, 1-week repo auction, the interest rate corridor, TL and FX liquidity management, and the Reserve Options Mechanism- ROM), was used to achieve price stability and establish financial stability. These policies helped curb the negative impact that could have been caused by the volatility in international markets.

In 2014, credit growth continued at a reasonable pace. Commercial loans and loans extended to small and medium-scale enterprises displayed a relatively stronger trend. The tight monetary policy stance coupled with macroprudential measures caused a decline in non-food inflation. Nevertheless, the end- year inflation remained well above the 5 percent- target due to the uptrend in food inflation stemming from adverse weather conditions.

The fight against inflation requires a number of other measures in addition to the monetary policy implementations of the CBRT. In particular, the course of food inflation in recent years has been a significant risk factor for both the level and the volatility of headline inflation. In this respect, the inauguration of the Food and Agricultural Product Markets Monitoring and Evaluation Committee in 2014, which was established with the contribution of the CBRT along with other institutions, is a very important step in terms of discussing food price developments on a common platform and taking necessary measures.

The CBRT Head Office and the Istanbul School of Central Banking (IMB) organized various national and international meetings, seminars, panels, workshops and conferences on topics related to the global and Turkish economy throughout the year. All these events contributed to the exchange of views between the Bank and international institutions, other central banks and academicians as well as to achieving international standards in the conduct of Bank’s activities. In addition, the Bank provided support for scientific activities in Turkish academia. Meanwhile, in-house training programs aimed at increasing the qualifications of the Bank personnel continued as well.

In accordance with the agreement reached with the Government during the preparation of the Medium- Term Program, the inflation target for the 2015-2017 period has been set at 5 percent. In the framework of the duty assigned to it by law, the Bank continues to contribute to balanced and sustainable growth in the Turkish economy with a view to achieving the price stability objective while at the same time safeguarding the financial stability objective. Our policy measures aim to ensure a stable trend in loan growth and inflation expectations. Maintaining fiscal discipline and effecting structural reforms will support macroeconomic stability and permanently boost Turkey’s growth performance.