Erdem Başçi: Latest economic outlook and macroeconomic developments in Turkey Speech by Mr Erdem Başçi, Governor of the Central Bank of the Republic of Turkey, at the January 2012 Inflation Report press conference, Istanbul, 31 January 2012. *  *  *  Distinguished Guests, Welcome to the press conference held to convey the main messages of the January 2012 Inflation Report. As required by our new communications policy, we will hold two of the four inflation report press conferences in Istanbul, all of which used to be held in Ankara before. I will now present an overview of the first inflation report of 2012, which will be published on our web-site shortly. The Report summarizes the economic outlook underlying monetary policy decisions, shares our evaluations on macroeconomic developments and presents our medium-term inflation forecasts which have been revised in view of the developments in the last quarter, along with our monetary policy stance. Moreover, the Report includes eleven boxes which entail interesting and up-to-date analyses on various topics. For instance, there is an analysis on the functioning of our recent liquidity management policy and its effects on financial markets. There is also a box exploring the sources of changes in inflation forecasts in the previous year, which is a topic included in the first inflation report every year. Another box examines the base effects that will play a major role in the course of inflation in 2012.
The downward slope of the current yield curve signifies a tight monetary policy stance (Chart 6). Additionally, loan interest rates have recorded a notable increase since October (Chart 7). As a consequence, loan growth rate declined to more reasonable levels towards the yearend (Chart 3). 4  BIS central bankers’ speeches  Chart 6. Chart 7. Yield Curve*  Consumer and TL Business Loan Rates*(Percent)  Calculated by the return on bonds quoted on the ISE  *Flow data. **4-week moving average. Bonds and Bills Market using the Extended Nelson-Siegel (ENS) method. Source: CBRT. Source: ISE, CBRT. Overall, the last quarter of 2011 was marked by ongoing tightening in monetary and financial conditions and a pronounced deceleration in loans. 2. Macroeconomic Developments and Main Assumptions  Having climbed to 10.45 percent at end-2011, inflation was significantly above the target. As you all know, the Article 42 of the Central Bank Law stipulates that in the case of a significant breach of the inflation target, we are required to report to the Government and announce to the public the reasons behind the breach of the target and the necessary measures to be taken. I would like to announce that we will publish the Open Letter that will be sent to the Government today on our web-site at 12 a.m. Now, I will touch upon the macroeconomic outlook and our assumptions which constitute the basis for our forecasts.