Inflation targeting (IT) is one of the operational frameworks for monetary policy aimed at attaining price stability. In contrast to alternative strategies, notably money or exchange rate targeting, which seek to achieve low and stable inflation through targeting intermediate variables—for example, the growth rate of money aggregates or the level of the exchange rate of an “anchor” currency—IT involves targeting inflation directly (World Economic Outlook 2005). In a wider context, IT is part of a process in which economic policymaking is becoming more transparent and subject to more accountability and technical rules, and less susceptible to discretionary actions.
IT has become an increasingly popular monetary policy strategy with around 21 countries (8 industrial and 13 emerging markets) now inflation targeters. Other countries are seeking to develop the necessary “infrastructure” to implement an IT framework, Egypt being one of the forerunners. However, the technical details related to the adoption of IT are not trivial and there are several country-specific factors that need to be taken into consideration.
Author(s): Rania Al-Mashat