Accordingly, the Central Bank has established an index excluding all food items and started to monitor this index closely. From time to time, the Central Bank draws the attention to price movements in certain subgroups of the CPI in order to increase efficiency of the communication of the monetary policy and to take sound decisions. For instance, in order to highlight the effects of the monetary policy tightening being implemented since mid-2006, the Central Bank has frequently referred in 2007 to the developments observed in sub-groups, such as services or durable consumption goods, whose prices are sensitive to monetary policy actions. In summary, the Central Bank examines several variables including Special CPI Aggregates while assessing the main inflation trend, and can highlight different indicators at certain periods depending on the economic conjuncture. Understanding of the Central Bank’s approach to core inflation by the public will allow for a sound assessment of the monetary policy actions and hence an improved efficiency of communication policies. Uncertainty band and accountability It is stipulated in Article 42 of the CBRT Law that “The Bank shall submit information to the Government in writing and inform the public disclosing the reasons of the incapability of achieving the determined targets in due time announced or the occurrence of the possibility  2  BIS Review 4/2008  of not achieving the targets and the measures to be taken thereof”.
However, as was the case before, the developments related to foreign exchange supply will be closely monitored and in the event of unforeseen extraordinary developments, the Central Bank may, with prior notice, change the daily auction amount and/or optional selling amount in both directions and may suspend the auctions temporarily for shorter and longer periods. On the other hand, the Central Bank will continue to closely monitor the volatility in exchange rates also in 2008 and will directly intervene in the market in the event of actual and potential excessive volatilities. Banks will also be able to borrow foreign exchange in terms of USD and euro from the Central Bank within the predetermined limits with a one-week maturity in the Foreign Exchange and Banknotes Market-Foreign Exchange Deposit Market in the upcoming period. Moreover, the purchase/sale transactions of “foreign exchange against foreign exchange”, “foreign exchange against foreign banknotes” and “foreign banknotes against foreign banknotes” conducted between the Central Bank and institutions authorized to operate in the Foreign Exchange and Banknotes Markets will continue. In conclusion, within the framework of the current exchange rate regime and the exchange rate policy of the Central Bank, economic agents should take into account that they operate in an environment of exchange rate risk and that they should establish mechanisms that will ensure the efficient management of this risk. Liquidity management As an outcome of the Central Bank’s foreign exchange purchases, the excess liquidity in the market continued in 2007, as well.