Mr. Erçel reports on medium and long-term prospects for the Central Bank of the Republic of Turkey Address by the Governor of the Central Bank of the Republic of Turkey, Mr. Gazi Erçel, before the 66th Shareholders’ General Meeting, in Ankara, on 28/4/98. A detailed account of economic developments during 1997 is given in our annual report for that year which has already been delivered to you. We are keeping the public informed of our expectations for this year through the quarterly announcements of our monetary programme. Today, instead of repeating these short-term perspectives, I would like to speak of the medium and long-term prospects of the Central Bank. For the last two years, my discourse has touched on what kind of institution an ideal central bank should be. Today, I want to consider this matter in a more detailed way. In recent years, there has been a worldwide trend towards simplification of the goals of central banking. This has led to a reduction of the responsibilities they take on. Funding their governments, for example, is no longer the main purpose of central banks. There is none among the western central banks that aims at achieving full employment of the highest level of production. Today’s modern central banks have only one aim: to maintain price stability.
It is not surprising that the Central Bank of Turkey, one of the most important institutions of the Turkish economy, which hopes to become integrated with the western economies, is affected by these trends in modern central banking as it maps out its medium and long-term strategies. Accordingly, the main goal of the Central Bank of Turkey, like that of other central banks, should be to maintain the stability of prices in the economy. At this stage I would like to clear up two points with respect to the price stability target. First, the Central Bank’s price stability target and its responsibility for price stability are two different issues. The price stability target assumes a stability which exists under conditions of low inflation. Therefore, the economy has to undergo a “ disinflationary process” before the Central Bank assumes responsibility for price stability. It is well known that in Turkey, which has been experiencing high inflation for years, reducing inflation to the levels of the western economies will require a comprehensive effort and is not a process which can be accomplished by the Central Bank alone. The Central Bank can track the price stability target as a part of the larger disinflationary programme. I believe that once low inflation rates have been achieved by means of such a programme, it will be a rational decision to make the Central Bank responsible for maintaining price stability. The second point I want to stress concerning the price stability target concerns microeconomic functions of central banks.