While this agreement should define the practical implication of the Reserve Bank’s goal of price stability, it should also guarantee the instrumental independence of the Reserve Bank. Secondly, the announcement of inflation targets clarifies the central bank’s intentions and reduces uncertainty about the future course of monetary policy. Inflation targets make policy transparent.
They make the central bank’s intentions explicit in a way that should improve the planning of the private sector. Thirdly, inflation targeting helps to discipline monetary policy and strengthens the central bank’s accountability. If targets are not met, the central bank has to explain what went wrong.