Inflation targeting of the wrong kind | Business Line

Inflation targeting of the wrong kind | Business Line


The article gives deep
insight into the historic relevance of the Reserve Bank of India’s role in the
economic growth of the country. The criticism about the central bank deviating
from the mandated role(the author has relied on the Preamble of the RBI Act)
need to be seen in its right perspective.
Price stability, being a
function of, among others, productivity of various sectors including
agriculture and manufacturing, resources availability, taxation policy and
exchange rate, RBI’s success in maintaining price stability will depend also on
fiscal management by and policy support from GOI.

Having said that, it
would be too soon to expect  RBI’s Monetary
Policy to have inflation targeting as its sole or primary objective. In the
Indian context, unlike other central banks, for historic reasons, RBI has taken
on itself several responsibilities in relation to economic development. It will
take time to put in place systems/institutions to shift all of them. The need
to shift each such responsibility including Public Debt Management is still in
dispute, though.
Like Railway Time Table
tells about late running of trains, Inflation Target will tell us what was the
aim of the policy makers at a given time. Aberrations will be explained from
time to time.

M G Warrier,


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