In other words, the impact of the fluctuations observed in financial markets in May and June on the consumption tendency is likely to be of a temporary nature. Therefore, the said impact is expected to lead only to a limited decline in total demand. Furthermore, it is estimated that the relative depreciation of the New Turkish lira will boost net foreign demand. Despite the likely positive impact of the demand conditions observed in the second half of the year on inflation, it does not seem possible to attain the 5-percent inflation target set for end-2006. However, as a result of the measures taken by the Central Bank from June onwards, we expect the secondary effects of the developments in exchange rates and commodity prices on inflation to remain limited, the likely pressure on 2007 inflation to diminish along with the recovery observed and the downward trend in inflation to continue. Parallel to the recovery - albeit limited - observed in inflation expectations in August and the relatively more favorable course of international liquidity conditions observed recently, the Monetary Policy Committee stated at its last meeting that the medium-term inflation outlook was much better compared to previous months and decided to keep short-term interest rates unchanged. However, as the risks against the disinflation process still persist, the cautious stance of monetary policy will be maintained. In this framework, if any development that would deteriorate inflation in the medium term arises, the Central Bank will not hesitate to resort to further monetary tightening.
Lastly, I would like to emphasize that the level of the current account deficit is not so important in terms of ensuring that it does not follow a volatile course and is not perceived as a significant risk factor. However, in an environment where turbulences are observed in the markets and uncertainty perceptions are increasing, it is reasonable to expect a surge in the perceptions of fragility in the current account deficit, as well as the popularity of these perceptions. The current account deficit is a closely followed indicator. We are also aware of the risk potential of the current account deficit and have been carefully monitoring it in coordination with other agents responsible for the economy. Dear guests, I was most honored to be here in Malatya and to have the chance to share my views on the Bank’s policies and macroeconomic developments with you today. Thank you. 10  BIS Review 89/2006