Advanced Eco nomies Emerg ing Eco nomies 0110  0709  07 08  01 09  0 0108  0110  0709  0  0109  0708  0108  0707  0107  -2  1  0707  1  Emergin g Econo mies  01 07  Adv anced Econo mies  -1  Source: Bloomberg, Datastream, CBRT. In the first half of 2009, the global financial markets recovered, albeit modestly relative to the final quarter of 2008 when the impact of the crisis was felt most strongly. This recovery is mainly attributable to measures taken worldwide in order to ensure the proper functioning of financial markets, unconventional monetary and fiscal measures taken by advanced countries and the relatively promising data on global economic activity. The global risk appetite continued to improve, though slowly, as of the year-end and early 2010. Global Risk Appetite and Risk Premium Indicators Currency and Risk Premium Indicators for Emerging Economies*  Global Risk Appetite Indices Credi t Suisse Ris k Appet ite Index  EMBI+ (basis poi nts)  100 0  VIX (right axi s-invert ed)  Currency Ind ex (b ask et - 1 US dol lar and 1 Eu ro) (righ t axi s)  3  8  80 0  6  16 0  14 0  2.5  4  2  60 0  2  12 0  1.5 40 0  0 1  Source: Bloomberg.
Then, I will briefly touch upon the exit strategy, the details of which were shared with the public last week, for gradually withdrawing measures taken during extraordinary circumstances. IV. Inflation developments and monetary policy implementations  31. As I have also mentioned at the beginning of my speech when evaluating the global economic developments, inflation rates saw dramatic declines on a global basis due to rapidly contracting economic activity and plunging commodity prices as of the last quarter of 2008. During this period, a similar pace was observed in Turkey regarding the inflation outlook. Despite the relatively sound structure of the Turkish financial sector, our exports being composed of mainly products sensitive to foreign conjuncture; the sensitivity of production to global credit conditions and high level of capacity at the onset of the crisis have deepened the contraction in economic activity. During this period, in addition to tightness in financial conditions, a sharp contraction in domestic demand was also experienced due to prevailing perception of uncertainty and increased precautionary savings. Furthermore, temporary tax incentives for stimulating the domestic demand led inflation to fall faster-than-  BIS Review 68/2010  11  expected in the first half of 2009. Consequently, the inflation rate remained below the announced target-consistent-path, in June. 32. As I have previously mentioned, as the pace of recovery in the global economy became more pronounced, the risk appetite in global financial markets started to boost as of the second half of 2009. Accordingly, emerging markets attracted more capital through increased portfolio movements.