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Inflation Targeting Framework
Page Content South Africa formally introduced inflation targeting in February 2000, after announcing the intention to adopt the framework in August 1999. Prior to adopting the inflation-targeting framework, the Bank had adopted a number of frameworks. Between 1960 and 1998, these included exchange-rate targeting, discretionary monetary policy, monetary-aggregate targeting and an eclectic approach.
Inflation targeting is a monetary policy framework in which the central bank announces an explicit inflation target and implements policy to achieve this target directly. One of the features of an inflation-targeting framework is the greater degree of transparency it brings to monetary policy.
Inflation targeting has been adopted in a number of countries. The choice of the target varies across countries. Some countries have opted for target ranges in specifying their inflation targets, while others prefer a point target or a point target combined with a range. The trade-off in this regard is essentially between the simplicity of a point target and the degree of flexibility for absorbing shocks outside the control of the authorities which a target range allows.
It is acknowledged that monetary policy cannot contribute directly to economic growth and employment creation in the long run. However, by creating a stable financial environment, monetary policy fulfils an important precondition for the attainment of economic development.
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