Moreover, we may also allow holding of up to 40 percent of Turkish lira reserve requirements in foreign currency. Meanwhile, technical studies are underway for enabling a facility that allows holding of 10 percent of Turkish reserve requirements in gold. We believe that these three decisions will have positive impacts on our banks, especially through the cost channel. Consequently, the Turkish lira liquidity to be supplied to the market will significantly and permanently diminish the funding needs of our banks; thus, favorably affecting the banking sector via the liquidity channel as well. Now, I would like to talk about our reserve policy. Following the enabling of the facility that allows holding precious metal deposit accounts and a part of FX reserve requirements in the form of “standard gold”, starting from October 28, 2011, we expect to see a rise in Central Bank gold reserves from for the first time since 1991. Central Bank’s gold reserves may continue to increase once it holding of Turkish lira reserve requirements in the form of gold is  BIS central bankers’ speeches  1  also allowed. The Central Bank purchased USD 26 billion-worth of foreign currency between August 2009 and July 2011. These purchases were primarily aimed at prudently supplying FX liquidity to our financial system, when needed, in order to support both price stability and financial stability.
In this context, the CBRT will continue to monitor global economic developments closely and will take the required measures promptly to maintain stability in domestic financial markets. While formulating the monetary policy, we will continue to monitor fiscal policy developments closely as well. In this respect, our forecasts presented in the baseline scenario take the Medium Term Program as given and thus assume that fiscal discipline will be maintained. A revision in the monetary policy stance may be considered, should the fiscal stance deviate significantly from this framework and consequently have an adverse effect on the mediumterm inflation outlook. In the period ahead, monetary policy will continue to focus on price stability while preserving financial stability as a supporting objective. To this end, the impact of the macroprudential measures taken by the CBRT and other institutions on the inflation outlook will be carefully assessed. Strengthening the commitment to fiscal discipline and the structural reform agenda in the medium term would support the relative improvement of Turkey’s sovereign risk and thus, facilitate macroeconomic and price stability. Sustaining the fiscal discipline will  10  BIS central bankers’ speeches  also provide more flexibility for monetary policy and support social prosperity by keeping long-term interest rates permanently at low levels. In this respect, I would like to conclude my remarks by underlining that timely implementation of the structural reforms envisaged by the new Medium Term Program remains to be of the utmost importance. Thank you for your participation. BIS central bankers’ speeches  11