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. 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. given the important role of trade and global financial channels in the contraction of domestic economic activity during 2009, we believe that global developments would continue to be the main determinant of the outlook for domestic activity

##ussetts, mit press, pp. 231 – 83. kohn, donald l. 2007. financial stability : preventing and managing crises. speech by the vice chairman of the board of governors of the federal reserve system at the exchequer club luncheon. washington dc, 21 february, 2007. morris, stephen and hyun song shin. 2004. coordination risk and the price of debt. european economic review. elsevier, vol. 48 ( 1 ), pp. 133 – 153, february. rajan, raguhuram g. 2005. has financial development made the world riskier? nber working papers. no. 11728. national bureau of economics research, inc. taylor, john b. 1993. discretion versus policy rules in practice. carnegie - rochester conference series on public policy 39, pp. 195 – 214. bis central bankers ’ speeches taylor, john b. 2009. the financial crisis and the policy responses : an empirical analysis of what went wrong. nber working paper 14631, national bureau of economic research, cambridge, ma, january 2009. bis central bankers ’ speeches