Direct-inflation target policies produce unexpectedly disappointing results

The Internation Clearing Bank, based in Basle, Switzerland, says that the direct-inflation target policy is not yielding the same effects in Poland as it has done in developed countries. The National Bank of Poland (NBP) has had a direct-inflation target policy in place since the beginning of 1999. The Monetary Policy Council (RPP) sets an inflation goal at the beginning of the year and any changes in interest rates are done in accordance with NBP's policy. The 2000 target is set at between 5.4% and 6.8%. This means the Central Bank has to create a year-average inflation goal. This year it is 4% by 2003. Although such direct-inflation policies have been successful in developed countries, in emerging markets such policies face two serious problems. Firstly, there are no precise statistics available, and secondly, prices are influenced by administrative decisions. "I agree with these reservations, but the other alternatives are worse," said RPP member Dariusz Rosati. He also emphasised some unmeasured positive psychological factors which are reducing inflation. (Rzeczpospolita, page B5) M.M.