The Producer Prices Index, which is calculated by excluding tax, indicates that manufacturing industry prices, comprising a significant part of the index, have become more susceptible to raw material prices and exchange rate developments compared to previous years (Graph 7). BIS Review 67/2006  5  Graph 7. Manufacturing Industry Prices and Exchange Rate Basket (0,5 USD + 0,5 Euro) (Annual Percentage Change)  Manufacturing Industry Prices  20  Exchange Rate Basket  10 0 -10  Mar-06  Jan-06  Nov-05  Sep-05  Jul-05  May-05  Mar-05  Jan-05  Nov-04  Sep-04  Jul-04  May-04  Mar-04  Jan-04  -20  Source: TURKSTAT, CBRT. The sector, in which the said effect is clearly perceived within the PPI, is the petroleum products sector that is subject to high taxes. Excluding the said effect, the annual rate of increase in manufacturing industry prices is maintaining its low-level trend, albeit its slight upward tendency (Graph 8). Graph 8. PPI and Manufacturing Industry Prices Excluding Petroleum Products (Annual Percentage Change) 12  Manufacturing Industry Prices Excluding Petroleum PPI  9  6  3  Mar-06  Feb-06  Jan-06  Dec-05  Nov-05  Oct-05  Sep-05  Aug-05  Jul-05  Jun-05  May-05  Apr-05  Mar-05  Feb-05  Jan-05  0  Source: TURKSTAT, CBRT. Distinguished Guests, Inflation expectations are determinant on inflation realizations in view of being the basis for both pricing behavior and wage adjustments.
Internationally, a number of empirical studies have been conducted on the effectiveness of exchange market interventions. The studies of interventions in the 1990s find that they were more effective than 5 studies conducted in the 1980s. This may be due to shifts in monetary policy regimes and greater emphasis on transparency. It is probably easier to win credibility when market participants know that interventions are anchored in stabilisation policy considerations rather than a short-term exchange rate objective. However, this presupposes market confidence in the ability of economic policy in general and monetary policy in particular to deliver nominal stability. It is first and foremost the signal effects of interventions that have been found to be effective and particularly when interventions are made publicly known and justified by the central bank. 4  Lars E. O. Svensson. ”Independent Review of the Operation of Monetary Policy: Report to the Minister of Finance”, February 2001. 5  L. Sarno and M.P. Taylor. ”Official Intervention in the Foreign Exchange Market: Is it Effective, and if so, How does it Work”, Discussion Paper No. 2690, February 2001, Center for Economic Policy Research. BIS Review 74/2001  7  For Norges Bank, it may be appropriate in special situations to intervene to a limited extent to stabilise inflation, should the krone move to a level that we do not consider reasonable on the basis of fundamentals, and if this could contribute to stabilising inflation. However, Norges Bank will not act in a way that prompts unilateral bets against the krone.