A country's central bank has a publicly stated goal of maintaining inflation at 2%. After a supply shock, inflation rises to 6%. The bank responds by increasing its main policy interest rate by 0.75%. However, after six months, inflation has only decreased to 5%, remaining significantly above the goal. Based on the principles of a committed inflation-targeting framework, what is the most appropriate subsequent action for the central bank?

Evaluating Central Bank Communication and Commitment

Under an inflation-targeting framework, if a central bank raises interest rates to combat high inflation but inflation remains above target after six months, the bank has fulfilled its primary obligation by taking a decisive initial action, and no further immediate policy adjustments are required.

Central Bank's Ongoing Mandate

The Rationale for Persistent Policy Adjustment in Inflation Targeting