The primary objective of the Bank is to achieve and maintain price stability. Price stability does not necessarily imply that prices do not ever change; rather it entails avoiding persistent increases (inflation) or decreases (deflation) in the general price level. Therefore, the purchasing power of the Turkish lira and hence its credibility would be preserved.
According to the CBRT Law, “The Bank shall, provided that it shall not be in confliction with the objective of achieving and maintaining price stability, support the growth and employment policies of the Government.” Low inflation is among the prerequisites of achieving long-term economic objectives. Therefore, maintaining price stability would be the chief contribution by the CBRT to policies aiming at economic growth and employment. Ultimately, not only do stable prices help economic agents make relatively well-informed decisions, thereby enhancing the efficiency of resource allocation, but also the reduction in the inflation premium due to low inflation levels reduces real interest rates, thereby supporting investment.
The CBRT and the Government jointly determine the inflation targets to be attained over the next three years. Accordingly, the inflation target until the end of 2015 has been set at 5 percent. Inflation targets are defined as the year-on-year percentage change of the consumer price index in December; and the 5%+/-2% band is defined as the uncertainty band. If year-end inflation falls outside of the 3%-7% band, then the Bank writes an open letter to the Government as part of its accountability procedures.