Moreover, in order to slow down credit expansion, we increased required reserve ratios (Chart 2). Meanwhile, in order to enhance financial stability by extending maturity of the banking sector liabilities, we differentiated reserve requirements across maturities, with higher reserve requirements for short-term liabilities. These measures led to a fall in net short-term capital inflows, stopped the acceleration of credit growth and extended maturities for deposits. Chart 2. CBRT Policy Mix CBRT Policy Rates  TL Required Reserve Ratios  (Percent)  (Percent)  Source: CBRT. Source: CBRT. In the first quarter of 2011, both the faster-than-expected increases in oil prices and the robust domestic demand required a more cautious stance regarding the inflation outlook. Specifically, oil prices hovering significantly above our January Inflation Report’s assumptions led to an increase in cost pressures. Moreover, the ongoing rapid growth in private consumption and private investment spending added to the need to contain domestic demand in order to avoid secondary effects of the increases in oil and other commodity prices. Notwithstanding historically low inflation at 4 percent in the first quarter, I would like to emphasize that we have acted with a medium-term perspective and started to highlight the upside risks to inflation since February. Accordingly, in order to eliminate the risk of deterioration in general pricing behavior, we have adopted a stronger monetary tightening than was envisaged in the January Inflation Report’s baseline scenario.
8  BIS central bankers’ speeches  Revised forecasts suggest that credits should grow at a measured and vigorous pace to keep inflation in line with targets over the medium term. To this end, we provide a numerical range for the annual rate of credit growth in order to be more concrete. I would like to underline that these growth rates should not be perceived as strict targets for the CBRT. At this point, I would also like to emphasize that the nominal credit growth consistent with the medium-term inflation target may vary over the years depending on the course of factors such as inflation, growth and the composition of the aggregate demand. As illustrated on the slide, over the next three quarters, inflation may display significant fluctuations mainly due to base effects driven by food prices. Accordingly, annual food inflation is expected to rise in the second quarter, decline in the third quarter, and increase markedly in the last quarter (Chart 15). Comparison of January 2011 and April 2011 Inflation Report Forecasts  Chart 16. Chart 17. Output Gap Forecast  Inflation Forecast  Source: CBRT. Source: TurkStat, CBRT. Comparing our current forecasts with those of the previous reporting period, I would like to reiterate that we revised the initial point of our output gap forecasts upwards due to the more-than-expected increase in the domestic demand in the last quarter of 2010 (Chart 16).