Effectiveness of the RBI's Inflation Targeting Regime
Successful Record
The RBI’s inflation targeting regime has been effective in managing inflation since its implementation.
Inflation targets set under this regime have generally been met, with only a brief period exceeding the upper limit.
Current Targets
The current target is 4% Consumer Price Index (CPI) inflation, with a tolerance range of 2% to 6%
The target and its range are considered broadly appropriate and effective in keeping inflation in check.
Positive Outcomes
Inflation rates have been lower and less volatile under this regime.
Inflation expectations are more stable and predictable.
The RBI's monetary policy actions have been more effective in influencing inflation
Suggested Adjustments
The weight of food-price inflation in the CPI basket could be reduced to better reflect typical household expenses.
Some argue that food inflation should be excluded from monetary policy decisions since it is largely driven by supply-side factors.
Abandoning the inflation-targeting approach for a more discretionary regime could be risky and counterproductive.
COMMENTS