At this point, I would like to emphasize that we will continue to take the necessary measures to contain the adverse effects of the global financial turmoil on the domestic economy, provided that they do not conflict with the price stability objective. The general framework of the Central Bank’s liquidity management is fairly flexible and wellstructured to fulfill its lender-of-last resort role and meet both New Turkish Lira and foreign exchange liquidity requirement of the banking system effectively. We will not allow any setback in New Turkish Lira money markets and will ensure smooth operation of payment system. In this context, judging that inflation will display a more rapid fall than envisaged before, the Monetary Policy Committee has decided to lower the borrowing rates by 50 basis points on November 19, 2008. In addition, the margin between the lending and borrowing rates was reduced by a further 50 basis points in order to contain the potential volatility in short term interest rates. Dear Guests, The Central Bank of Turkey is aware of the significance of foreign exchange liquidity in the banking system and progressively puts into effect necessary measures in order to get through this period with minimal damage. Accordingly, the Central Bank resumed its activities as an intermediary in Foreign Exchange and Banknotes Markets as of 9 October 2008 and later raised transaction limits in the Foreign Exchange and Banknotes Markets to USD 10.8 billion.
A positive output gap indicates a level of activity that fuels pressures on economic resources and rising price and cost inflation. (See for example Frøyland and Nymoen (2000) and Olsen, Qvigstad and Røisland (2003) for more on the output gap.) The optimism spread to Norway, where equity prices also rose. The level of activity was very high in the securities market, among corporate lawyers, consultancies and in the ICT industry. High oil prices through most of the 1990s resulted in buoyant investment activity and growth in operating expenses in the petroleum sector. With substantial government tax revenues, expectations concerning the use of petroleum revenues also rose. It became increasingly challenging to keep pressures in the economy at bay by means of fiscal policy. The response to this challenge was the revision of economic policy in spring 2001. The most important policy change was the strategy for the phasing in of petroleum revenues – the so-called fiscal rule. An inflation target for monetary policy was introduced at the same time. The revision came after four years of strong economic expansion and high growth in labour costs, pressures to spend petroleum revenues and high household credit growth. Implementation of monetary policy • The interest rate is set so as to keep inflation at a low and stable level • Higher interest rates will reduce inflation by curbing demand and strengthening the krone. An interest rate reduction has the opposite effect. • The effects of interest rates on inflation may vary over time.