Inflation targeting is a monetary policy framework where the central bank commits to maintaining a specific inflation rate. The goal is to ensure price stability by using monetary tools to keep inflation within a target range.
In this framework, the central bank pledges to keep inflation within a defined range. If inflation exceeds the target, the central bank raises interest rates to reduce money supply. If inflation falls below target, it cuts rates to stimulate the economy.
Benefits include central bank transparency, price stability, and better management of market expectations.
In Bangladesh, while Bangladesh Bank doesn't formally follow an inflation targeting framework, price stability is one of its core objectives. Given rising inflation and modern monetary policy demands, Bangladesh Bank may move toward formal inflation targeting in the future.