The medium term outlook presented in the Report assumes that problems in the euro area will be resolved gradually and the global outlook will not deteriorate further. However, the probability that the solution of the problems may take a more protracted and painful process poses downside risks regarding the global growth and risk appetite. On the other hand, perceptions regarding the global economic outlook may turn more favorable than expected, should the measures taken towards the solution are completed sooner and more decisively than envisaged. Such a situation, coupled with the ongoing quantitative easing policies pursued by the central banks of advanced economies, may improve risk appetite and re-accelerate capital flows towards emerging economies. Overall, ongoing problems in the euro area and uncertainties regarding the effectiveness of measures aimed at solving these problems suggest that global financial markets will continue to be volatile in the forthcoming period. These conditions necessitate a flexible approach in monetary policy, which utilizes multiple instruments. I would like to underline once more that the CBRT will continue to monitor global developments closely and take the required measures promptly. Another risk on the inflation outlook is the uncertainty regarding oil prices. Although weak global outlook dampens commodity prices, rising problems of oil supply have recently posed upside risks on energy prices. I would like to reiterate that should such a risk materialize, the CBRT will not respond to temporary price movements, yet will not tolerate any deterioration in expectations. We will continue to monitor fiscal policy developments closely while formulating monetary policy.
The downward slope of the current yield curve signifies a tight monetary policy stance (Chart 6). Additionally, loan interest rates have recorded a notable increase since October (Chart 7). As a consequence, loan growth rate declined to more reasonable levels towards the yearend (Chart 3). 4  BIS central bankers’ speeches  Chart 6. Chart 7. Yield Curve*  Consumer and TL Business Loan Rates*(Percent)  Calculated by the return on bonds quoted on the ISE  *Flow data. **4-week moving average. Bonds and Bills Market using the Extended Nelson-Siegel (ENS) method. Source: CBRT. Source: ISE, CBRT. Overall, the last quarter of 2011 was marked by ongoing tightening in monetary and financial conditions and a pronounced deceleration in loans. 2. Macroeconomic Developments and Main Assumptions  Having climbed to 10.45 percent at end-2011, inflation was significantly above the target. As you all know, the Article 42 of the Central Bank Law stipulates that in the case of a significant breach of the inflation target, we are required to report to the Government and announce to the public the reasons behind the breach of the target and the necessary measures to be taken. I would like to announce that we will publish the Open Letter that will be sent to the Government today on our web-site at 12 a.m. Now, I will touch upon the macroeconomic outlook and our assumptions which constitute the basis for our forecasts.