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Monetary Policy Graph

Monetary Policy Framework
The Bank's monetary policy objective is to ensure price stability – low inflation – and, subject to that, to support the Government's economic objectives including those for growth and employment. Price stability is defined by the Government's inflation target. This target is revised annually and spelt out clearly in the budget statement for each fiscal year. The object recognizes the role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The 2002 International Commercial Bank Act made the Bank independent to set interest rates. The Bank is accountable to parliament and the wider public.

The Inflation Target
The desired inflation target of below 10 percent is expressed in terms of an annual rate of inflation based on the Consumer Prices Index (CPI). Although the Bank is not bound by law to explain to the Ministry of Finance or to parliament if the target is not achieved, the Governor may be summoned to the Finance Committee of parliament to explain developments within the economy. A target of 10 percent does not mean that inflation will be held at this rate constantly. The economy is subject to shocks that can cause unnecessary uncertainty and volatility. When inflation stays above target for some obvious reasons, the MPC’s aim would be to steer interest rates so that inflation can be brought back to target within a reasonable period of time without creating undue instability in the economy.

The Monetary Policy Committee
The Bank seeks to achieve government’s inflation target by setting an interest rate. The level of interest rates is decided by the Monetary Policy Committee. The MPC consists of seven members – five from the International Commercial Bank and two external members appointed by the Minister of Finance. The meetings are chaired by the Governor of the International Commercial Bank. The MPC meets bi-monthly for a three-day meeting, usually beginning on the third Tuesday of the month in which the meetings have been scheduled, ending on the Thursday of that same week. The meeting dates for each year are determined well in advance at the beginning of each year. Decisions are made by a vote of the Committee on a one-person one-vote basis with each member stating clearly with reasons why a particular rate decision.

The interest rate decisions are usually announced on a Monday following the Friday on which meetings normally become conclusive. Though the minutes of the meetings are not published a wide range of economic reports are made available at the International Commercial Bank website two weeks after the announcement of the interest rate decision. These economic reports provide a detailed analysis of
economic conditions at the time of the meeting. The report covers the following areas: World Economic Outlook and External Sector Report, Fiscal Sector Report, Monetary and Financial Developments Report, Financial Stability Report, Real Sector Development Report and an Inflation Outlook and Analysis Report.

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