Durmuş Yilmaz: Turkey’s monetary and exchange rate policy for 2007 Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the Central Bank of the Republic of Turkey, Istanbul, 13 December 2006. *  *  *  General framework of the monetary policy A brief evaluation of the first year of the inflation targeting regime The Central Bank of the Republic of Turkey (Central Bank) adopted the formal inflation-targeting regime at the turn of 2006, and since that time has implemented a policy consistent with the principles laid out in the policy statement entitled “General Framework of Inflation Targeting Regime And Monetary And Exchange Rate Policy for 2006” and released on 5th of December, 2006. Four Inflation Reports have been published in 2006, in January, April, July and October. These reports have explicated the Central Bank’s inflation forecasts and policy perspectives. The main messages of the reports have been shared with the public each time in by means of press conferences. The Monetary Policy Committee (Committee) held regular meetings throughout 2006, in addition to the interim meetings held in June, in line with the pre-announced annual timetable to determine policy rates. Press releases explaining the rationale of decisions and the Committee’s policy stance have been published along with interest rate decisions. Moreover, the summary reports of the Committee’s discussions have been released within five working days following the meetings.
Since the end of 2005, the Central Bank has repeatedly drawn attention to this matter via the Inflation Report and other policy documents. Special CPI aggregates and core inflation Instead of considering a single so-called core indicator, the Central Bank uses more than one indicator in the differentiation of various exogenous shocks. Thus, depending on the source of shocks, different indicators may stand out from time to time. For instance, the index that excludes the energy item in a period where oil prices display high increases or the index that excludes the unprocessed food group in a period where agricultural prices fluctuate excessively may contain more comprehensive information in order to achieve a better understanding of the main inflation trend. Special CPI aggregates produced will continue to be a part of the forward-looking inflation analysis and the communication policy of the Central Bank. As of 2005, TURKSTAT started to publish 7 special CPI aggregates and beginning from September 2006 the H index composed by excluding energy, alcoholic beverages-tobacco, unprocessed food, and gold has started to be published. Currently, even though the H index seems to be relatively in the forefront, it should be kept in mind that this index is sensitive to developments in FX rates and it could provide incomplete information in periods when FX rates are highly volatile. In such periods it would be appropriate to support the data from the H index with other indexes that have low FX rate pass-through (for example; evaluating them with service prices inflation).