Inflation Targeting
Inflation targeting is a monetary policy strategy used by central banks to control inflation by setting a specific target rate. The goal is to maintain price stability, which helps ensure a stable economy. By publicly announcing an inflation target, usually around 2%, the central bank can guide expectations and influence decisions made by businesses and consumers. If inflation rises above the target, the central bank may raise interest rates to reduce spending and borrowing. Conversely, if inflation is too low, it might lower rates to encourage economic activity. This approach aims to create transparency and build trust in the economy.
Additional Insights
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Inflation targeting is a monetary policy framework used by central banks to maintain stable prices by setting a specific inflation rate as a goal. This approach involves publicly announcing the target inflation rate, typically around 2%, and using interest rates and other tools to achieve it. By aiming for a predictable inflation rate, central banks help to create a stable economic environment, which can foster consumer and business confidence. This stability encourages investment and spending, ultimately supporting economic growth while preventing excessive inflation or deflation, which can disrupt the economy.