RBI yet to adopt inflation targeting, still reviewing options: Raghuram Rajan

MUMBAI: The Reserve Bank of India has not yet set the path of inflation targeting as is depicted in the Urjit Patel committee report and is still exploring suggestions on the subject, governor Raghuram Rajan said on Friday.

“We haven’t moved into inflation targeting as yet...That’s something the Urjit Patel committee has suggested, and it’s not something the RBI has accepted,” Rajan said while addressing a convocation of the central bank-run Indira Gandhi Institute for Development Research.

A special panel headed by the RBI deputy governor Urjit Patel had proposed a framework for monetary policy with several recommendations.

While the panel suggested a shift in focus to retail or consumer price index (CPI) from the wholesale price index (WPI), it also set the path for targeting inflation, with the aim to bring down CPI-based inflation to 4% in the next two years, and by March 2015, it should be at 8%. Retail inflation dropped to a forecast-beating, 25-month low of 8.1% in February, against 8.8% in January.

The WPI fell to a nine-month low of 4.7% in February on the back of a drop in food and fuel prices. It was at 5.05% in January. “We need to bring CPI (inflation) down,” the governor said.

“Whatever level it comes down to, the path to bring it down to is 8% by the end of this year, and 6% by the end of the succeeding year.”

India has been faced with tough times as a nagging inflation hampers growth prospects with economists debating the growth-inflation tradeoff.

But Rajan dismissed this notion, saying in the long run, there’s no trade-off between growth and inflation. He also cautioned that battling inflation continuously can inflict a cost on growth in the short-run.