The share of foreign currency-denominated loans in the current debt stock of households is rather small compared to other emerging economies, especially those in Central and Eastern Europe. Financial markets seemed to have appropriately appraised these factors, as the risk premium in Turkey deteriorated by a smaller extent when compared to many other emerging economies during the peak of the crisis. Relative stability in financial markets of Turkey has provided our bank more policy space relative to many other emerging economies. The Central Bank of Turkey has used this opportunity to guide expectations. As expectations were further aligned with the policy intentions of the CBT, bond yields decreased to historically low levels. This is an important  BIS Review 123/2009  3  development, because in previous crises real interest would tend to increase, thereby exacerbating the severity of the economic contraction. Current situation reflects the improved effectiveness of Turkish monetary policy and highlights the transformation of Turkish economy. Dear Participants, Turkey has always had a great climate for Green Shoots to blossom. Our recent crisis in 2001 was followed by a strong “V” shaped recovery process. However, despite the signs of partial improvement in domestic consumption in recent months, its strength and durability is questionable. We expect that demand uncertainty and low levels of capacity utilization will continue to weigh down on investment spending and employment. High unemployment will continue to contain private consumption demand and blur the prospects for a solid recovery.
However, as the financial stress intensified and the economic contraction deepened, policy rates rapidly approached the zero interest rate floor. With their economies still under acute strain, central banks in some advanced economies responded by implementing a series of unconventional measures. The goal of these measures was to provide markets with ample amounts of liquidity to help restore the health of financial systems balance sheets, and thereby to reactivate the provision of credit to the real economy. However due to stress in the financial sector, the effectiveness of the transmission mechanism of monetary policy may be hampered to some extent. And the usefulness of conventional countercyclical monetary policy may be relatively limited during financial crises. Distinguished Guests, The global economy is still in unchartered territories creating lots of confusion among the policymakers on the consequences of the monetary and fiscal stimulus steps taken so far globally. Most governments have taken fiscal measures to mitigate the effects of global turmoil either by decreasing tax rates or increasing public investment spending and expenditures. So far we see a consensus about the need for accommodative monetary policies around the globe. On the other hand, high public debt of the most developed economies has aroused serious concern on debt sustainability. According to the OECD projections, by 2017 gross public debt as a share of GDP is expected to rise sharply to 125% in the US, 160% in the UK, 125% in France, and over 100% in Spain.