Inflation targeting is no miracle cure but it's the best available - Prof. Vidya Mahambare

The debate over the suitability of flexible inflation targeting (FIT) for India again gained momentum after a recent presentation by a group of economists. The backdrop of this attack on the FIT regime is the announcement that the Reserve Bank of India (RBI) is to continue with its Consumer Price Index (CPI) inflation target of 4% +/-2% for the next five years. The presentation makes the following key claims, among others. First, FIT led to higher than desired real interest rates, with adverse consequences for economic growth, in recent years. Second, the moderation in inflation under the FIT regime is almost exclusively due to a consistent decline in global inflation and slower increases in minimum support prices for farm produce, and should not be attributed to the policy shift.