Accordingly, the policy rate has been kept constant since February, while the weighted average of reserve requirement ratios for Turkish lira liabilities was hiked by 410 basis points in March and April  2  BIS central bankers’ speeches  (Table 1). Meanwhile, in April, FX reserve requirement ratios were differentiated by maturity where short-term FX reserve requirement ratios were increased slightly. Thus, the policy mix composed of policy rates and reserve requirement ratios has been adjusted to deliver a monetary tightening, implying a more cautious monetary stance (Chart 2). Table 1. Weighted Average of TL and FX Required Reserve Ratios (Percent) Decision Date  TL Weighted Average  FX Weighted Average  January 24, 2011  9.4  11  March 23, 2011  13.2  11  April 21, 2011  13.5  12  Source: CBRT. Although credit growth slowed quarter-on-quarter in the first quarter, the rate of increase in loans has yet to fall to levels compatible with financial stability (Chart 3). The upward trend in loans is driven by both supply and demand side factors. While intense competition is effective on the supply side; the favorable economic outlook and the improvement in employment conditions help to keep demand for loans robust. However, we expect that credit utilization will continue to lose pace in the second quarter due to the lagged effects of the current monetary tightening. 2. Chart 3. Chart 4. Loans  TL Business Loan and Deposit Rates  (Nominal, January 2007=100)  (Annual, Percent, 4-week Average)  Source: CBRT.
Monetary policy should not, and in the end cannot, prevent such changes in relative prices. They will show up either in higher consumer prices or in a lower level of other prices and pay. Either way, the result is the same – a loss of real purchasing power. This year our real take-home pay will rise at a slower pace than national productivity. Rising fuel, gas, electricity and food prices, mean that average real take-home pay will stagnate this year. It will not be an easy time, and I know that some families will find it particularly difficult. But it is only a temporary slowing in the growth of our real take-home pay and remember that this is the opposite side of the coin to the falls in prices of manufactured goods from countries such as China and India, which in the nice decade allowed our standard of living to rise at a rate faster than productivity. The squeeze on real take-home pay will arguably be an even more significant restraint on consumer spending this year than the credit crunch. And it will affect the housing market too – lower demand in the high street will go hand in hand with lower demand in the property market. I have said in the past that there is no causal link between house prices and consumer spending. That remains the case. How closely they move together depends on the underlying forces that are driving them both.