As illustrated on the slide, in December, the weighted average of the reserve requirement ratios were remarkably raised by differentiating the ratios such that they are lower for longer maturities (Table 1). Moreover, the reserve requirement base has been expanded to include funds received by banks through repurchase agreement (repo) transactions from foreign and domestic customers, except for those funds received from repo transactions with the Central Bank and those among domestic banks. Finally, with the decision we made yesterday, TL reserve requirement ratios were re-increased for the short-term deposit/participation fund and other liabilities. Hence, the weighted average reserve requirement ratio calculated by taking the share of liabilities into consideration has increased by 4.4 percentage points since 23 September 2010. At this point, I would like to inform you about our evaluations regarding the effects of our recent decisions. The change in required reserves is expected to affect the credit market through cost and liquidity channels. With the said regulations, nearly a total of TL 22.5 billion a will have been withdrawn from the market. According to the recent data, this amount equals to approximately 5.8 percent of TL-denominated credits excluding financial sector. We believe that the monetary tightening implemented by increasing in the weighted average of reserve requirement ratios would more than offset the expansionary effects of the interest rate reductions. Therefore, we expect that the net impact of the monetary policy decisions we have taken recently will be tightening.

However, the time lag and the extent of the impact of the policy measures may vary depending on developments beyond the control of the monetary policy. Therefore, the CBRT will closely monitor the effects of the policy measures and take further actions should the credit growth rate or the inflation rate deviates from desired levels. Developments regarding the global economy remain central for the domestic inflation and monetary policy outlook. Under current conditions, we employ several instruments to maintain both price stability and financial stability. Therefore, unlike previously, global developments would affect not only the direction, but also the composition of our policy. Accordingly, global developments will be assessed with respect to their effects on the growth rate of aggregate demand as well as its composition. Although there has been some improvement in the expectations pertaining to the US economy, uncertainties driven by debt sustainability problems across the euro area peripheral economies still persist. Ongoing problems in credit, real estate, and labor markets across advanced economies and uncertainties regarding the impact of potential fiscal consolidations continue to pose downside risks to the pace of global economic recovery. The possibility of a longer-than-anticipated period of anemic global growth and the likelihood of a  14  BIS central bankers’ speeches  long period of quantitative easing by advanced economies not only creates downside risks regarding foreign demand but also suggests that capital inflows to Turkey may continue at a faster pace.