Average year-end inflation rate from 2004 to 2008 is 9 percent. It means that the highest year end inflation since the announcement of the index was in 2008 with the rate 10.1 percent. If the figures are reviewed solely, a pessimistic picture appears. However, the actual situation is not so. In the last two months, inflation has decreased by two points, which is a significant development. In addition, year-end inflation is even lower when calculated with 'I' core inflation indicator, and fluctuates around a level in line with the 2009 inflation target.

It is doubtless that making a healthy estimation on the movement in inflation rate solely by assessing the current situation. The focus should rather be on the potential changes in the elements determining the inflation rate. In this context, however, there are no new developments to comment on. When the headlines on inflation rate on the dailies are reviewed, the main determination on the future inflation rate becomes apparent right away. The headline on Radikal daily is striking: 'crisis-victim inflation'. Hürriyet daily makes the comment "oil prices went down, market has narrowed down and inflation rate for 2008 is close to one-digit figure".

The recession we currently observe will continue during a significant period in 2009. The most optimistic estimation on 2009 growth is not even as high as 2 percent. There is a considerable group of people that prospect the economy to shrink. Biggest economies of the world are struggling with recession. It becomes apparent that energy prices will vary far below the 2008 averages due to the recession, though demonstrated a slight increase because of the Gaza attack. The statement is valid also for basic metal prices.

Under these circumstances, it appears that there is nothing that will obstruct meeting the 2009 inflation target. The only risk with this respect is the possibility of a rise in exchange rates. Exchange rate can rise for two reasons: A new global fluctuation can happen. However, the US is trying to take measures against this possibility. The new administration is making significant efforts. Therefore, it is a distant possibility that exchange rates increase to a disturbing level.

The second reason that can push up the exchange rate to a level that will put a pressure on inflation might be the problems the corporate and the banking sectors might encounter in accessing external funds. The credit to be received under the context of the IMF agreement to be signed will diminish this risk to a certain extent. In standard IMF agreements it is not possible to transfer a certain amount of this fund to the corporate sector. However, if a mechanism that will meet at least a part of the external funding needs of the corporate sector can be designed, the mentioned risk will diminish further.

Therefore, 2009 is open to favorable developments with respect to inflation. When the information we have at hand is considered, it is in fact a considerable possibility that the year-end inflation rate falls below the target. Now, let us assume that, soon, a satisfactory economic program will be announced or it will become apparent that such program will be announced. In that case and under the framework given above in brief, a wide room to maneuver for cutting down short-term interest rates will arise.

However, I have to make self-criticism: Though I recognized the rationale, I did not find the first interest rate cut by the CB meaningful with respect to timing. I thought that, as we are in the crisis period, the CB could have waited for a couple of months to cut the rate. Because, if the risk perception increased, the interest rate, which is the main determinant of the consumer and investor decisions, may not have fallen down despite the rate cut by the CB. And this would have lead to a credibility loss with respect to the monetary policy and would have not stimulated the domestic demand even slightly. The CB took a risk; but turned out to be right. I hope that they turn out to be right as well in all future decisions and I criticize myself in joy for not agreeing with them.

This commentary was published in Radikal daily on 04.01.2009