'Inflation-targeting worked, no major revamp required'

Almost a decade after India shifted to a formal inflation-targeting regime under the Monetary Policy Committee (MPC) framework of the Reserve Bank of India (RBI), a high-level panel of economists said that the flexible inflation targeting has largely worked in keeping it under control and no major revamp is required.

- BS REPORTER

Speaking at a session moderated by A K Bhattacharya of Business Standard, Chetan Ghate, professor, Economics and Planning Unit, Indian Statistical Institute, said the success of inflation targeting has to be judged in terms of establishing the credibility of nominal anchor.

"Prior to inflation targeting, we followed a multiple indicator approach. RBI was looking at lots of different indicators and financial markets did not understand what the markets was doing. So, now we have gravitated towards another anchor where nominal anchor is credibly established," he said, adding that one should not judge the success of inflation targeting by declines in inflation but by establishing a credible nominal anchor, by the decline in volatility of key macro parameters, anchoring inflation expectations.

"Inflation targeting has by and large been a success. It does not need a major rethink," he said.

According to Ashima Goyal, emeritus professor of Economics, Indira Gandhi Institute of Development Research, inflation targeting was rushed through without domestic debate to understand in what ways inflation targeting suits an economy like India.