However, the time lag and the extent of the impact of the policy measures may vary depending on developments beyond the control of the monetary policy. Therefore, the CBRT will closely monitor the effects of the policy measures and take further actions should the credit growth rate or the inflation rate deviates from desired levels. Developments regarding the global economy remain central for the domestic inflation and monetary policy outlook. Under current conditions, we employ several instruments to maintain both price stability and financial stability. Therefore, unlike previously, global developments would affect not only the direction, but also the composition of our policy. Accordingly, global developments will be assessed with respect to their effects on the growth rate of aggregate demand as well as its composition. Although there has been some improvement in the expectations pertaining to the US economy, uncertainties driven by debt sustainability problems across the euro area peripheral economies still persist. Ongoing problems in credit, real estate, and labor markets across advanced economies and uncertainties regarding the impact of potential fiscal consolidations continue to pose downside risks to the pace of global economic recovery. The possibility of a longer-than-anticipated period of anemic global growth and the likelihood of a  14  BIS central bankers’ speeches  long period of quantitative easing by advanced economies not only creates downside risks regarding foreign demand but also suggests that capital inflows to Turkey may continue at a faster pace.
I would like to elaborate on these factors to enable a better understanding of the forecasts. The October Inflation Report envisaged food inflation to be 10.5 percent at end-2010, to fall gradually to 7 percent at end-2011 and to remain at these levels throughout the forecast horizon. As I stated at the beginning of my speech, the sharp decline in unprocessed food inflation during the fourth quarter resulted in lower-than-expected food inflation. However, the potential impact of the recent upsurge in agricultural commodity prices on processed food prices led to an upward revision in the assumption for food inflation from 7 percent to 7.5 percent, which had around basis points upside impact on 2011 inflation forecasts (Table 2). BIS central bankers’ speeches  11  In the October Inflation Report, oil prices were assumed to be USD 85 per barrel for 2011 and USD 90 per barrel for 2012 and beyond. Moreover, import prices were assumed to rise gradually over the forecast horizon, increasing by an average percent year-on-year in 2011. Commodity prices have accelerated further since the release of the October Inflation Report due to the ongoing quantitative easing in advanced economies and the strong growth in emerging economies. In this context, in view of the commodity futures prices for the first half of January, we raised our oil price assumption to USD 95 per barrel for 2011 and thereafter (Table 2). Furthermore, again considering the commodity futures prices, we assume that import prices will increase by about 10.9 percent in 2011 (Figure 23).