RBI still to adopt inflation targeting, says gov Rajan

RBI still to adopt inflation targeting, says gov Rajan

RBI still to adopt inflation targeting, says gov Rajan

Reserve Bank of India (RBI) governor Dr Raghuram Rajan on Friday said the central bank has not yet moved to an inflation target and is still exploring the suggestions on the subject drafted by a panel with the government.

Delivering the keynote address at the convocation of the apex bank-run Indira Gandhi Institute of Development Research here this afternoon, Rajan said, “We haven't moved into inflation targeting as yet... That's something the Urjit Patel committee suggested, and it's not something the RBI has accepted.”

RBI chief also reiterated his preference for targeting retail price inflation. He added, “What the RBI has said is that we are exploring the recommendations of the Urjit Patel report, and there are some aspects of it which have to be discussed with the government. As such, we have to explore some of these aspects with the government, including the setting up of a monetary policy committee, including what is any inflation target would be.”

Rajan highlighted the two things in the Urjit Patel committee report, which are useful. “First is probably we should focus more on Consumer Price Index (CPI) than Wholesale Price Index (WPI) because CPI is what actually the common man sees and based on many decisions including wage decisions. Second is that we need to bring CPI down and a reasonable path to bring it down overtime whatever level it ultimately comes down to.

A path to bring it down is 8 per cent by the end of this year and 6 per cent at the end of two years,” he said.

The Patel report had called for moving away from the current wholesale price index based inflation to retail price based CPI inflation as the chief data point for the RBI to set inflation expectations.

CPI index for February came in at 8.1 per cent and WPI at 4.78 per cent for the month.Rajan also debunked the growth-inflation trade-off saying the long run trade-off between growth and inflation doesn't exist.

However, he said that continued inflation fighting could inflict a cost on growth in the short-run. “In the short run, there may be a cost to bringing down inflation in terms of growth. But in the long-run, bringing down inflation is a good thing and helps sustainable growth.”Rajan will unveil the next policy on April 1.

On K C ChakrabartyIn a statement on Friday, Rajan said that deputy governor K C Chakrabarty, who decided to quit on Thursday was ouspoken and was a “valuable guide”. “The Reserve Bank is very grateful for his many years of excellent work in very difficult times. Dr. Chakrabarty always speaks his mind, and has been a very valuable guide for successive governors. I personally have benefited enormously from his advice,” Rajan said and added that a search was on for his successor.