It is the general framework under which monetary policy operates in Colombia. Banco de la República makes interest rate decisions with the intent of bringing inflation to the target and contributing to maintaining economic activity (the economy’s output) close to its potential level (the level of production when the economy operates at full capacity).
What is the inflation target, and why is meeting it important?
The inflation target is the quantitative objective set by Banco de la República to comply with the constitutional mandate of preserving the purchasing power of money through low and stable inflation. When the target is credible, it becomes an inflation anchor around which inflation expectations will revolve. This implies that the price adjustments economic agents make according to their inflation expectations will be in line with the target, thereby contributing to its fulfillment.
Related Blog BanRep: The Target Inflation Framework
Recent installments of this Blog introduced crucial elements of monetary policy, such as the inflation target and the monetary policy interest rate. These elements are the building blocks of what is known as the target inflation framework —the general structure under which monetary policy operates in Colombia...
