Synopsis
But the key point is that the monetary policy is working, and GoI and RBI need to allow it to continue. What do we mean by ‘functioning quite well’? First, RBI responds to both changes in inflation and changes in the output gap. It balances the two considerations. Thus, it is best characterised as a ‘flexible inflation targeter’, not an ‘inflation nutter’.
By Barry EichengreenThe monetary policy framework of inflation targeting will soon celebrate its sixth birthday, if we date its nascence to the inflation-targeting agreement signed by the Reserve Bank of India (RBI) and GoI in February 2015. ‘Celebrated’ may not be exactly the right word, however, since the conduct of monetary policy has been heavily criticised.Some critics have argued that Indian inflation is so heavily influenced by global
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