In the last quarter of 2008, the aggravated lack of confidence in the global financial markets had unfavorable effects on the global liquidity flow and created an extraordinary demand especially for US dollar liquidity. This led to significant depreciation of the TRY, as was the case for currencies of other developing countries. Despite these developments in the exchange rate, slowdown in total demand and the decline in commodity and food prices affected inflation outlook positively, which provided room to maneuver for monetary policy. Against this backdrop, the Central Bank has taken several measures to support the liquidity of the financial system and to ensure the efficient functioning of the credit markets. BIS Review 3/2009  3  Chart 3. Inflation expectations for the next 12 and 24 months  10  12 Months  9  Target Revision  24 Months  8 7 6 5  Kas.08  Eyl.08  Tem.08  May.08  Mar.08  Oca.08  Kas.07  Eyl.07  Tem.07  May.07  Mar.07  Oca.07  Kas.06  Eyl.06  Tem.06  May.06  Mar.06  Oca.06  Kas.05  Eyl.05  Tem.05  May.05  Mar.05  Oca.05  4  Source: CBT. Since the Central Bank can directly control New Turkish Lira liquidity, it can support smooth functioning of financial and credit markets by providing the required liquidity. As for foreign exchange liquidity developments however, external conditions are more influential.
It is stipulated in Article 42 of the CBT Law that “The Bank shall submit information to the Government in writing and inform the public disclosing the reasons of incapability to achieve the determined targets in due time published or the occurrence of the possibility of not achieving and the measures to be taken thereof”. Implementation details regarding the specification of the extent of the deviation from the target that require explanation are left to  BIS Review 3/2009  5  the discretion of the Central Bank. In this respect, the Central Bank sets an uncertainty band around the target and enforces the accountability mechanism in case figures breach this band. The uncertainty band for 2009 has been maintained at two percentage points around the target. In this context, a path consistent with the end-year target has been established for the end of each quarter. The figures to be used as a reference for accountability throughout 2009 can be found in Table 1.