Dr. Erdem Başçı
Governor

Foreword

The Turkish economy has witnessed many notable developments in recent years. Compared to 2002, the country’s Gross Domestic Product (GDP) increased by 78 percent in real terms by the third quarter of 2015. Over the same period, significant progress was made in tackling inflation and inflation rates were brought down to single digits permanently, thanks to prudent monetary and fiscal policies. On the back of the sustained budget discipline in the public sector and prudent borrowing in the private sector, real interest rates decreased significantly and realized at around 2.5 percent on average in 2015. In the framework of the floating exchange rate regime implemented since 2001, the Central Bank of the Republic of Turkey (CBRT) used a set of tools and achieved a cumulative USD 97-billion increase in the CBRT foreign exchange and gold reserves by end-2015.

In order to contain the macro-financial risks posed by the global imbalances to the domestic economy, the CBRT designed and launched a new policy strategy by the end of 2010. While the priority of price stability is maintained in the new policy approach, financial stability is also safeguarded as a supporting objective. In this context, several complementary tools such as the interest rate corridor, TL and FX liquidity management, and the Reserve Options Mechanism (ROM) are utilized alongside conventional tools. The implemented policies aim at re-balancing macro-financial risks without compromising on price stability in the medium term. Along this direction, credit growth has been taken under control and exchange rates have moved more consistently with economic fundamentals.

In 2015, the CBRT introduced some additional measures taking into account the expectations for global economic developments. In particular, uncertainties over the Federal Reserve's (Fed) rate hike have fueled unfavorable expectations for emerging market economies (EMEs). The CBRT published a road map document on 18 August 2015 setting out the measures to be taken towards mitigating the impact of uncertainties in global monetary policies on the Turkish economy and enhancing the Turkish economy’s resilience against global shocks. To sum up, the CBRT's policy stance in 2015 against the inflation outlook has been tight, stabilizing in foreign exchange liquidity, and supportive for financial stability.

The disinflation process requires a number of other measures in addition to the CBRT’s monetary policy implementations. 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 establishment of the Food and Agricultural Product Markets Monitoring and Evaluation Committee with the contribution of the CBRT is regarded as a very important step in terms of allowing the Ministry of Economy, the Ministry of Customs and Trade, the Ministry of Development, the Ministry of Finance, the Prime Ministry Undersecretariat of Treasury, the CBRT and the Turkish Statistical Institute (TurkStat) to discuss food price developments on a common platform and to take necessary measures. It is envisaged that the measures taken under the coordination of this Committee will provide structural and cyclical contributions in reducing the food inflation.

Within the framework of the G20 Presidency of Turkey in 2015, the CBRT organized various high-level conferences and meetings. The CBRT also held a number of 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 CBRT and international institutions, other central banks and academicians as well as to achieving international standards in the conduct of the CBRT’s activities. In addition, the Bank provided support for scientific activities in Turkish academia. Meanwhile, in-house training programs aimed at developing the skills of Bank staff 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 2016-2018 period has been set at 5 percent. In the framework of the duty assigned by law, the CBRT 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 financial stability. The CBRT’s policy measures aim to ensure a stable course in inflation expectations and to sustain a balanced growth outlook. Maintaining the fiscal discipline and implementing the announced structural reforms will support macroeconomic stability and permanently boost Turkey’s growth performance.