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Turkish Central Bank: Price stability could enable real interest rates to be much lower

Increasing savings are needed to accelerate and sustain growth, Turkish Central Bank Governor Erdem Başçı has said.

“Different from many other countries, the fundamental factor that will enable growth in Turkey is increasing savings,” Başçı said, addressing the Fourth International Economy Conference held in Kemer in the southern province of Antalya. “We aim to maintain growth in Turkey through increasing savings, so the efforts will be in this direction,” he said during the meeting organized by Turkish Economy Institution.The Central Bank’s top contribution to the balanced growth, meanwhile, will be maintaining price stability,which has been designated as the top target of the institution, Başçı also said, adding that price stability could enable nominal and real interest rates to be much lower, thus paving way for higher growth. The slowdown in EU growth and geopolitical tensions have restrained external demand. Despite waning external demand, exports continue to support the balanced growth. Regarding the developments in the Turkish economy, the recent global financial volatility has affected Turkey in a way similar to other emerging economies. In the third quarter, Turkey’s risk premium indicators fluctuated on par with those of other emerging economies In the third quarter of 2014, the uncertainty over advanced country monetary policies led to a partial volatility increase in global financial markets. While the US Federal Reserve (Fed) ended its quantitative easing program, uncertainties regarding the timing and size of a policy rate hike continued. In this period, the European Central Bank (ECB) cut its policy rates against the risks of an economic slowdown and deflation and announced a kind of quantitative easing program of buying covered bonds and asset-backed securities. In the second and third quarters of 2014, indicators for global economic activity performed lower than expected, causing growth forecasts for this year to be revised down. Financial market volatility and falling global growth rates led to some fluctuation in capital flows to emerging economies. Following the weakening global growth outlook, commodity prices dropped markedly as well.