Current Affairs India: ExplainSpeaking | Is inflation-targeting the right policy mandate for India?

Tuesday, 11 April 2023

ExplainSpeaking | Is inflation-targeting the right policy mandate for India?

Something remarkable happened last week. Quite unexpectedly, the Reserve Bank of India (RBI), the institution charged with the job to contain inflation, decided to stop raising interest rates. It was almost as if the RBI suddenly decided to stop boxing and instead stand in one corner of the ring.

The question is, how can RBI be so far behind achieving its inflation target of 4% and yet be so comfortable as to pause when there’s no clear evidence that inflation is no longer a concern.

Many economists have repeatedly warned against the use of inflation-targeting by the RBI. Instead, they point to another way of viewing and controling inflation. This is called the “structuralist model”.