The medium-term inflation target and the target for 2021

The Minister of Finance and the MPC mutually agreed to maintain the monetary policy target for price stability such that the headline inflation is to reside within the range of 1.0 – 3.0 percent for the medium-term horizon and for the year 2021. This range target, while being conducive to the full-potential economic growth, is deemed appropriate in addressing the changing inflation dynamics from technological advancements and the transition into an aging society. Moreover, the range inflation target enhances the flexibility in monetary policy formulation amid highly volatile and uncertain global economic circumstances after the COVID-19 outbreak, while allowing the MPC to fulfill economic growth and financial stability objectives more effectively. Nonetheless, the purpose of setting the medium-term target is to properly address the lag effects of monetary policy, which takes time to have a full impact on the economy.

In the  case  that headline inflation breaches the announced target

A mutual agreement between the MPC and the Minister of Finance states that

"Should average headline inflation in the past 12 months or forecast of average headline inflation over 12 months ahead breach the inflation target range, the MPC shall send an open letter to the Minister of Finance to explain (1) reasons for the breach of target, (2) monetary policy actions in the past and going forward to support the return of headline inflation to target over an appropriate time horizon, and (3) the expected time frame for a return of headline inflation to target. Furthermore, the MPC will write an open letter to the Minister every six months if average headline inflation based on the above criteria remains outside the target range, while also report the progress of their policy actions as appropriate."