What is inflation targeting?

What is inflation targeting?

Inflation targeting is a monetary policy strategy used by central banks to control inflation by setting a specific inflation rate as a goal.

Why do central banks use inflation targeting?

Central banks use inflation targeting to provide a clear framework for monetary policy, enhance transparency, and stabilize the economy.

How does inflation targeting affect interest rates?

Inflation targeting influences interest rates as central banks may raise or lower rates to achieve the targeted inflation rate.

Can inflation targeting lead to economic growth?

Yes, by maintaining stable prices, inflation targeting can create a favorable environment for investment and economic growth.

What are the criticisms of inflation targeting?

Critics argue that inflation targeting can be too rigid, may overlook other economic indicators, and can lead to excessive focus on inflation at the expense of growth.