This co-ordination must be clearly spelled out and all stakeholders should be consulted, including business and the trade union movement. A formalised co-ordinated approach will probably lead to the best results. The Reserve Bank is therefore of the opinion that with the adoption of inflation targets a policy target agreement should be drawn up that would be signed by the Minister of Finance on behalf of Cabinet and the Governor of the Reserve Bank to define precisely the co-ordinated effort needed to contain inflation in pursuit of the broader economic objectives of sustainable high economic growth and employment creation. 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. This leads to a better understanding on the part of the public on what basis monetary policy decisions were made. Although inflation targeting has certain definite advantages when compared with other monetary policy frameworks, it could also have certain disadvantages.