Central Bank Realigns Inflation Focus to Medium Term Amid Policy Transmission Delays

February 22, 2024


In a new policy shift, the Central Bank has announced a strategic refocus on medium-term inflation targets over near-term outcomes.

During a technical briefing on the latest Monetary Policy report, a senior Central Bank official elucidated the move as a response to the approximately two-month lag in the impact of policy decisions on inflation figures.

The medium-term approach is projected to give the market and stakeholders a more reliable predictive framework, ultimately improving policy coordination and anchoring expectations more firmly. "This paradigm shift is essential for better-informed decisions across the government, private sector, and other stakeholders, fostering a constructive policy dialogue," the official stated.

Forecasts by the Central Bank now extend eight quarters forward, acknowledging that policy transmission can vary from six to twelve months and, in some instances, up to eighteen months. The immediate inflation forecast for the current year anticipates an increase, primarily attributed to the one-off effects of the newly implemented Value Added Tax.

Despite this, there is a strong confidence within the Central Bank that inflation will stabilize in the latter part of the year and align with the government's target of 5 percent in the coming year. Officials maintain a positive outlook for the economy's progression towards equilibrium, despite temporary deviations spurred by tax changes and transient supply disruptions.