Inflation targeting has been widely adopted in both developed and emerging economies.
Inflation targeting is one of the operational frameworks for monetary policy aimed at attaining price stability as a primary goal of monetary policy, while other goals are subordinated to the achievement of the inflation target, which comes as a first priority. An important element of the inflation targeting framework is transparency of the monetary policy strategy through communication with the public and the markets about plans, objectives, and decisions of the monetary authorities.
The main aim of this study is to assess the applicability to apply Inflation targeting in Egypt. Comparing the current position of Egypt with some emerging market economies.
In order to achieve this aim, the paper discusses the definition of inflation targeting and the prerequisites to apply inflation targeting. Then we illustrate two case studies in applying inflation targeting in emerging economies (Chile and Brazil). To try to answer the main question in this study. Is Egypt ready to apply inflation targeting? and the lessons that can be learned from emerging market economies to apply inflation targeting successfully.
The study concludes that the success of inflation targeting in emerging market economies required not only a focus on good communication and transparency by the Central bank, but also supportive policies to develop strong fiscal, financial and monetary institutions.
In addition, the study concluded that the preconditions of inflation targeting are moderately met in Egypt. In addition, it needs more efforts to improve transparency and accountability, ensuring greater independence of the CB and developing strong fiscal and financial institutions.