Using this fiscal room mostly to reduce the government debt, as implied by the fiscal rule, would enhance demand management and ease the need for indirect tax hikes, therefore providing more flexibility regarding the conduct of a stabilizing monetary policy. In this respect, we believe that should the goals set out in the Medium Term Program be implemented through institutional and structural improvements, such as enacting and establishing the fiscal rule, it would be possible to keep policy rates at single-digit levels over the medium term. Since the last quarter of 2008, the CBT, without conflicting with its primary objective of price stability, has focused on containing the adverse effects of the global crisis on the domestic economy, which has, to a large extent, been achieved. Monetary policy will continue to focus on price stability in the period ahead. Adhering to the commitment for fiscal discipline and strengthening the structural reform agenda would support the improvement of Turkey’s sovereign risk, and thus facilitate macroeconomic and price stability in the medium term. In this respect, while reiterating once more that timely implementation of the structural reforms envisaged by the Medium Term Program and the European Union accession process remains to be of the utmost importance, I would like to thank you for your participation.
It is this macro-prudential perspective that I want to discuss today – specifically, to consider how macro-prudential policy will need to adapt, just as our health-care plans adapt, to be fit for the challenges of the future. Since the global financial crisis, the financial system has not been a cause of sustained economic instability. But this is no reason for complacency. The financial system is ever changing. And experience suggests our job may not yet be complete. So today, I will begin by setting out why financial stability is important and the role of macroprudential policy in delivering it. In so doing I hope to set out why it’s as important for the financial system to observe macro-prudential policies as it is for patients to stick to their health-care plans. I will then briefly set out some principles on which good macro-prudential policymaking is based. The rules of thumb that underlie our prescriptions if you like. And I will conclude by raising some challenges that macro-prudential policy is facing now, including my thoughts on the road ahead. Through that, I hope to set out how we need constantly to adapt macro-prudential policies, as we do with our health-care plans as lifestyles evolve. Interactions between financial stability and sustainable growth and the role for macroprudential policy Why is financial stability important? To understand why we place so much emphasis on a well-grounded macro-prudential framework, it’s important to understand why we care about financial stability in the first place.