close
This ad will auto close in 10 seconds

Subbarao questions inflation-targeting, doubts its efficacy

Former Reserve Bank governor Duvvuri Subbarao has doubted achieving the 4 percent inflation target set under the new MPC set-up given the narrow margin the new price index has now and the way prices have been moving up in recent months.  


Subbarao questions inflation-targeting, doubts its efficacy

Mumbai: Former Reserve Bank governor Duvvuri Subbarao has doubted achieving the 4 percent inflation target set under the new MPC set-up given the narrow margin the new price index has now and the way prices have been moving up in recent months.

"Inflation has come down to such a low level now.. Even gone below 5 percent, but now it is inching back. So achieving 4 percent inflation target by January 2018 is going to be quite challenging," Subbarao told PTI.

Explaining his position, the former governor who in his memoir doubted the efficacy of inflation targeting citing lack of global experience, said "at the margin, the challenge of reducing inflation from the current 5.8 percent to 4 percent is going to be much more difficult than bringing it down from 8 percent to 5.8-5.5 percent."

The wholesale inflation accelerated for the third straight month in June hitting 1.62 percent on costlier food and manufactured items, after remaining in the negative territory for close to two years on poor demand and under utilisation of industrial capacity coupled with the crash of commodity prices, especially that of crude oil and metals.

The hardening of the WPI index follows an uptick in the more flippant consumer price inflation, which hit a 22-month high of 5.77 percent in June.

In the June policy review, RBI Governor Raghuram Rajan had left the interest rates unchanged, citing rising inflationary pressure, but hinted at a reduction later this year if good Monsoon helps ease inflation.

Inflation-targeting was mooted by the Percy Mistry committee report and fine-tuned by the Raghuram Rajan report.

Inflation-targeting, unveiled in January 2014, could be counted as a key legacy of outgoing Governor Rajan, who chose CPI over WPI for policy setting.

Subbarao, who was the governor for a five-year period from September 2008 to 2013 and now teaches at the National University of Singapore, said inflation is driven by oil and food prices, which are vulnerable to supply shocks and are not easily controlled through monetary policy.

In his just published book of his RBI tenure 'Who moved my interest rate' Subbarao is more vocal about having an inflation target.

"The world over, there is a rethink on its advisability. Global experience shows that an inflation-targeting framework is neither necessary nor sufficient to maintain price stability."

From Zee News

0 Comment - Join the Discussions

trending

photo gallery

video