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We have not moved to inflation targeting as yet, says Raghuram Rajan

Special Correspondent
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Raghuram Rajan
Raghuram Rajan

The Reserve Bank of India (RBI) Governor Raghuram Rajan on Friday said that the central bank was yet to take a decision on Urjit Patel committee report which had suggested an inflation target and was still in discussion with the government on the subject.

“We haven’t moved to inflation targeting as yet,” said Dr. Rajan while addressing the convocation ceremony of the Indira Gandhi Institute of Development Research, here.

The Deputy Governor of the RBI Urjit Patel had submitted, in January last, a report of the expert committee to revise and strengthen the monetary policy framework, suggesting the central bank to move to an inflation target, with an aim to eventually bring down consumer price index (CPI) inflation to 4 per cent with a 2 per cent band on either side.

“There is something that the Urjit Patel Committee suggests but that is not something which the RBI has accepted. We are exploring the recommendations of the committee report and there are some aspects of it, which has to be discussed with the government.......including setting up of a Monetary Policy Committee and what is the target (inflation) would be,” said Dr. Rajan.

However, reiterating his preference for CPI, Dr. Rajan said that “probably we should focus more on CPI than wholesale price index (WPI) because CPI is what actually the common man sees and based on many decisions including wage decisions”.

Further, he said that there was a need to bring down CPI 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 added.

Dr. Rajan also felt that, across the world, it had been experienced that allowing inflation to rise does have costs and does not have benefits. He warned “Higher and higher level of inflation feed on each other and the ultimate is hyper inflation. Hyper inflation has social conflict because middle-class savings get wiped out. Hyper inflation is not where we want to go. Moderate rate of inflation do not necessarily translate into hyper inflation, but we need to be careful”.


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