Overall, there has not been any major change in medium-term forecasts and the monetary policy stance, since economic activity has evolved in line with the outlook presented in the October Inflation Report. However, all the main variables affecting the short-term forecast have been subject to an upward revision. In this respect, while short-term forecasts were revised upwards significantly, there has been no major change regarding medium-term forecasts. The revised forecasts indicate that there will be no significant upside pressures on inflation, even if policy rates remain at low levels for a long period. However, as depicted in the slide, inflation is likely to display a significant increase over the next two months due to tax hikes and strong base effects (Figure 34). Moreover, the annual inflation rate may post a limited increase in the second quarter of 2010, due to the low base effect generated by the Consumer Price Index in the first half of 2009, when the downside effects of the global crisis on prices became more pronounced. Accordingly, even if inflation remains above the target for some time, parallel to the gradual phasing out impact of the tax hikes, inflation is expected to trend downwards, stabilizing at around 5 percent over the medium term. BIS Review 31/2010  15  As you may have noticed, I have frequently referred to the base effect today. The reason for this is that the base effect will influence the course of annual inflation throughout 2010 to a large extent.
You will find our detailed explanatory evaluations regarding the base effect and its effects on 2010 inflation outlook in a box under the third chapter of the Inflation Report to be posted on our website shortly. I strongly recommend that you read these evaluations carefully. The fact that inflation is expected to stay at elevated levels for some time due to tax adjustments and strong base effects highlights the importance of expectations management. In this respect, with the awareness of these temporary factors, it is critical that economic agents focus on the medium-term inflation trend, and therefore, take inflation targets as a benchmark for their pricing plans and contracts. I would like to emphasize once more that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, assumptions regarding future policy rates underlying the inflation forecast should not be perceived as a commitment on behalf of the CBT. 4. Risks  Distinguished Members of the Press, In the last part of my presentation, I would like to talk about the risks with respect to the inflation outlook in the upcoming period and provide some information pertaining to the probable monetary policy strategy should these risks materialize. The outlook for the domestic economy and the risks thereto has been largely shaped by global developments in line with the intensification of the global crisis as of the last quarter of 2008.