Within the framework that I have drawn up so far, we forecast inflation, with 70 percent probability, to be between 4.1 percent and 6.9 percent (midpoint 5.5) at the end of 2008, and between 1.8 percent and 5.5 percent (midpoint 3.7) at the end of 2009 (Figure 15). The forecasts are based on the scenario in which policy rates display a limited decline in 2008. Main message of the forecast is that continuation of the gradual easing cycle that started in 2007 September will remain conditional on favorable data and developments. In that sense, the current policy stance envisages a more moderate decline in policy interest rates than indicated in the previous Inflation Report. I would like to emphasize once more that any new data or information on the inflation outlook may lead to a revision in the future policy stance of the Central Bank. Therefore, the policy path that was indicated above should not be perceived as a commitment on behalf of the CBRT. BIS Review 20/2008  11  4. Risks and monetary policy  Distinguished Guests, I would like to dedicate the last part of my speech to the upside and downside risks to the inflation and monetary policy outlook in the upcoming period. The main upside risk factor for the current medium term inflation outlook pertains to the potential second round effects of the accumulated supply shocks, which may also create a higher than expected inflation inertia, as currently manifested in the medium term inflation expectations.
Esteemed Press Members, Overall, we expect aggregate demand conditions to support the downward trend in the underlying inflation, i.e., inflation excluding items beyond the control of monetary policy such as energy, food and tobacco prices. Hence, barring new supply shocks, headline inflation should continue to move towards the target. The speed of the convergence to the target, however, will depend mainly on the course of food and energy prices. Distinguished Guests,  10  BIS Review 20/2008  Our forecast in the 2007 October Inflation Report incorporated two main assumptions: The assumption for oil price was set as 70 USD per barrel. Observing the high base created by the unusually elevated food prices in 2006, we assumed food inflation to correct towards the values consistent with medium term inflation in 2007. However, food and energy inflation turned out to be more persistent than we had envisaged, as the prices of oil and agricultural commodities continued to rise throughout 2007. These developments not only led to an undershooting of our inflation projections for end-year 2007, but also necessitated an upward revision in our medium term forecasts. In this framework, we revised our assumption for oil prices from USD 70 to USD 85 per barrel in 2008. Higher oil price assumption added about 0.5 percentage points to the end2008 inflation forecasts.