Inflation targets are set jointly by the CBRT and the Turkish Government for 3-year periods. The year-on-year change in the consumer price index as of year-end is used as the inflation target.
An uncertainty band has been defined around the inflation target at 2 points above and below it. If the year-end inflation falls outside this band, then the CBRT writes an open letter to the Government in line with the accountability principle.
Under the inflation targeting regime, year-end inflation rates calculated as the 12-month change in the Consumer Price Index (CPI) are set as the target variable. In addition, inflation targets are jointly determined with the Government as point targets.
Today, a higher inflation target is set in Turkey compared to advanced economies due to:
- The structural transformation in Turkey in the recent years,
- Rigidities brought about by a history of high inflation,
- Measurement bias resulting from the increase in quality,
- EU harmonization process.
The following table lists the target and actual inflation rates in Turkey since 2002: