Since it is forwardlooking the central bank can at least try to foresee future problems or structural changes and meet them through a rate adjustment. The ability to act quickly is essential, as monetary policy acts with some lag and the economic cost of increasing inflation becomes lower if it is checked at an early stage. Another benefit is that the central bank does not become as tied as with a rule, but instead can take account of alternative scenarios and risks. Moreover, these assessments can be regularly updated in the light of new information about economic developments.2  1  This is known as the Taylor rule. The US economics professor John B. Taylor is Under Secretary for International Affairs at the US Department of the Treasury. He has formulated a simple rate-setting rule that has come to be known as the Taylor rule and that has become very popular. This is one of many examples of monetary policy rules. 2  See the speech by Federal Reserve Board Governor Ben S. Bernanke, "The Logic of Monetary Policy" (2004). In his speech Bernanke discusses advantages and disadvantages of following a simple monetary policy rule compared with a forecast-based policy. See also Apel, M., Nessén M., Söderström U.
Therefore, the CBT will not react to the first round effects of short-term volatility in commodity prices, especially when domestic resource utilization remains at depressed levels. However, if an uptrend in commodity prices coincides with a strong and durable rebound in global economic activity that would in turn have adverse effects on inflation expectations, then the CBT will tighten monetary policy appropriately to keep inflation in line with medium-term inflation targets. Since the last quarter of 2008, the CBT, without endangering its main objective of price stability, has focused on containing the adverse effects of the global crisis on domestic economy, and this task has to a large extent been achieved. Monetary policy will continue to focus on permanent price stability in the period ahead. Strengthening the commitment to fiscal discipline and the structural reform agenda would support the relative improvement in Turkey’s sovereign risk, and thus facilitate macroeconomic and price stability. In this respect, before concluding my remarks, I would like to underline once more that timely implementation of the structural reforms envisaged by the Medium Term Program and the European Union accession process remains to be of the utmost importance. Thank you for your attention. BIS Review 31/2010  17