Inflation targeting can't be a formal policy goal: D Subbarao

MUMBAI: RBI is not in favour of adopting inflation targeting as a formal monetary policy goal, said the Reserve Bank of India governor D Subbarao on Monday. “Inflation targeting is neither feasible nor advisable in India, and for several reasons.

First, in an emerging economy like ours, it is not practical for the central bank to focus exclusively on inflation, oblivious of the larger development context,” said Subbarao at the meeting of the Central Bank Governance Group in Basel, Switzerland. Moreover, the drivers of inflation in India often emanate from the supply side, which are normally beyond the pale of monetary policy.

Besides, there is no uniform measure of inflation. However, there is an influential view through a committee headed by former IMF chief economist Raguram Rajan that RBI adopts inflation targeting.

The argument is that inflation hurts much more in a country like India with hundreds of millions of people below the poverty line and RBI will be more effective in combating inflation if it is not burdened with other objectives.