Within this framework, a more detailed examination of the struggle against inflation process in Turkey reveals that decline in inflation also helped mitigate the fluctuations in inflation and this means less uncertainty and less volatility in economy. While decreased uncertainty brings along decline first in risk premium and then in nominal as well as real interest rates, it decreases borrowing costs from the consumers’ point of view, and opportunity cost of investments from the producers’ view point. At this point, I would like to draw your attention to a risk factor in which the decline in borrowing costs has a significant role. Under chronic inflation conditions, consumers tend to renew durable goods such as automobiles, white goods and alike less frequently. However, when a certain point is attained in the process of reducing inflation, the consumers start purchasing their postponed needs. Demand for durable goods that the consumers defer to purchase tends to increase rapidly in the face of decline in inflation and fall in the borrowing costs. The recovery in demand is not yet at a level that could create an inflationary effect since it is coupled with a rise in productivity. Provided this demand does not assume a permanent nature and lasting economic stability is attained, it is expected that such fluctuations will become less frequent and less intense, but still, it should be monitored very closely. 2  BIS Review 63/2004  Meanwhile, there is another point that I would like to emphasize.
Esteemed participants, In terms of the structural transformation programs, financial sector, owing to its significance, is the sector that is most and fastest affected from the process, as well as being the leading sector in terms of supporting the process. Accordingly, further steps need to be taken in this sector in the process of falling inflation. Dear audience, The third factor I will be conveying to you today within the context of the effects of falling inflation on the economy is that, together with falling and foreseeable inflation, prices resume their signaling task in the economy and thus their roles as indicators in the allocation of resources. Departing from the example of Turkey, as we all know from the past experience of chronic inflation, consumers used to be inclined to make less price and quality controls, and attach less significance to diversity in their choices of goods. Producers on the other hand, used to set their profit margins freely to a large extent, paying little attention to their pricing, the costs and productivity. They also showed little interest in making investments for increasing the diversity of their products by adding them new ones. As a result of this structure, the quality of production declined in time, global competitiveness of our country weakened and integration with the world economy was delayed. Nevertheless, with the absolute as well as the relative prices resuming their signaling task following the decline in inflation, the behavior patterns of producers and consumers in Turkey began to change.